cdi corp....ˆ1fs9l0gnj79x=1r!Š 1fs9l0gnj79x=1r cdi corporation 50763 fs 1 annual report - form...

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50763 FS 1CDI CORPORATIONANNUAL REPORT - FORM

05-Mar-2007 23:27 ESTCLN PSPHL

RR Donnelley ProFile LAN shinr0in 2*PMT 1C

CHWFBU-MWS-CX059.6.18

Securities and Exchange CommissionWashington, DC 20549 Form 10-K

( X ) Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934For the fiscal year ended December 31, 2006

or

( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934For the transition period from to

Commission file number 001-05519

C D I C o r p . (Exact name of Registrant as specified in its charter)

Pennsylvania(State or other jurisdiction of incorporation or organization)

1717 Arch Street, 35th Floor, Philadelphia, PA 19103-2768(Address of principal executive offices)

23-2394430(I.R.S. Employer Identification Number)

(215) 569-2200(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Common stock, $.10 par value(Title of each class)

New York Stock Exchange(Name of exchange on which registered)

Indicate by a check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES NO X

Indicate by a check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES NO X

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities ExchangeAct of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days. YES X NO

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be con-tained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form10-K or any amendment to this Form 10-K.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer Accelerated filer X Non-accelerated filer

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) YES NO X

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at whichthe common equity was last sold, on the last business day of the registrant’s most recently completed second fiscal quarter, as reported onthe New York Stock Exchange was:

Common stock, $.10 par valueClass B common stock, $.10 par value

$384,511,174Not applicable

The outstanding shares of each of the Registrant’s classes of common stock as of February 28, 2007 were:Common stock, $.10 par valueClass B common stock, $.10 par value

20,005,202 SharesNone

Documents Incorporated By ReferencePortions of the Registrant’s Proxy Statement to be filed with the Securities and Exchange Commission for the Registrant’s 2007 AnnualMeeting are incorporated by reference in Part III.

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50763 TX 1CDI CORPORATIONANNUAL REPORT - FORM


RR Donnelley ProFile LAN pakkb0dc 1*IFV 1C

CHWFBU-MWS-CX019.6

Table of Contents

It

em

P a r t I 1 Business 2

1A Risk Factors 7

1B Unresolved Staff Comments 10

2 Properties 10

3 Legal Proceedings 10

4 Submission of Matters to a Vote of Security Holders 11

P a r t I I 5 Market for Registrant’s Common Equity and Related Stockholder Matters 12

6 Selected Financial Data 14

7 Management’s Discussion and Analysis of Financial Condition and Results of Operations 15

7A Quantitative and Qualitative Disclosures About Market Risk 30

8 Financial Statements and Supplementary Data 31

9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 50

9A Controls and Procedures 50

9B Other Information 52

P a r t I I I 10 Directors, Executive Officers and Corporate Governance 53

11 Executive Compensation 53

12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 53

13 Certain Relationships and Related Transactions, and Director Independence 53

14 Principal Accountant Fees and Services 53

P a r t I V 15 Exhibits and Financial Statement Schedules 54

Signatures 57

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Part I

Caution Concerning Forward-Looking StatementsThis report (including Management’s Discussion and Analysis of Financial Condition and Results of Operations) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements that address expect-ations or projections about the future, including statements about the Company’s strategy for growth, expected expenditures andfuture financial results, are forward-looking statements. Some of the forward-looking statements can be identified by words like“anticipates,” “believes,” “expects,” “may,” “will,” “could,” “intends,” “plans,” “estimates,” and similar expressions. These state-ments are not guarantees of future performance and involve a number of risks, uncertainties and assumptions that are difficult topredict. Because these forward-looking statements are based on estimates and assumptions that are subject to significant business,economic and competitive uncertainties, many of which are beyond our control or are subject to change, actual outcomes andresults may differ materially from what is expressed or forecasted in these forward-looking statements. Important factors that couldcause actual results to differ materially from the forward-looking statements include, but are not limited to: changes in generaleconomic conditions and levels of capital spending by customers in the industries that the Company serves; possible inaccurateassumptions or forecasts regarding the bill rate, profit margin and duration of assignment applicable to billable personnel (andregarding the utilization rate of billable personnel in the Company’s project business); competitive market pressures; the availabilityand cost of qualified labor; changes in customers’ attitudes towards outsourcing; the Company’s level of success in attracting, train-ing, and retaining qualified management personnel and other staff employees; the ability to pass on to customers increases in costs(such as those relating to workers’ compensation, unemployment insurance, medical insurance coverage or other costs which mayarise from regulatory requirements); the Company’s performance on customer contracts; the possibility of incurring liability for theCompany’s activities, including the activities of its temporary employees; adverse consequences arising out of the U.K. Office of FairTrading investigation; and government policies or judicial decisions adverse to the staffing industry. More detailed informationabout some of these risks and uncertainties may be found in the Company’s filings with the SEC, particularly in “Risk Factors” inPart 1, Item 1A of this Form 10-K. Readers are cautioned not to place undue reliance on these forward-looking statements, whichspeak only as of the date hereof. The Company assumes no obligation to update such statements, whether as a result of newinformation, future events or otherwise.

Item 1. Business

GeneralCDI Corp. (the “Company” or “CDI”) (NYSE:CDI) wasincorporated under the laws of the Commonwealth of Pennsyl-vania on July 30, 1985. It succeeded to the business of CDICorporation, which was incorporated on September 16, 1950 inPhiladelphia, Pennsylvania. The Company, which providesengineering and information technology outsourcing solutionsand professional staffing, derives the majority of its revenues byproviding services to Fortune 1000 companies and equivalentnon-U.S.-based multinational companies serviced primarily inthe United States, Canada and the United Kingdom. Its servicescan be described in the following broad categories:

‰ Project outsourcing - Project outsourcing includesvalue-added engineering and consulting services undercontractual engagements that generally are more than ayear in duration. These services typically involve managinga portion of a customer’s capital project, and may includefeasibility studies, structural analysis, infrastructuremanagement, facility design, enterprise support, andtechnology advisory services.

‰ Permanent placement - Permanent placement servicesinclude the search and recruitment of candidates tobecome employed by CDI’s customers. Generally, theCompany performs permanent placement services on anon-exclusive, contingency basis and the Company is

compensated only upon successfully placing a recom-mended candidate. The Company also provides out-sourced management of the entire permanent hiringprocess throughout an organization and can scale-up tomeet the needs of national and international orga-nizations utilizing skilled recruitment specialists and lead-ing edge technology.

Permanent placement revenues also include ongoingroyalty fees which are based on a contractual percentageof the Company’s franchisees’ permanent placementrevenues.

‰ Staffing services - Staffing services include assigning theCompany’s skilled engineering, information technology,construction and other professionals, as well as clerical,legal, financial, and administrative personnel, to work ata customer’s location under the supervision of customerpersonnel on a contractual basis. In managed staffing,the Company assumes the management of a customer’sstaffing function and, in some cases, certain other humanresource functions. The Company utilizes web-basedtechnology to support these functions.

‰ Franchise services - Franchise services include providingthe Company’s franchisees the right to use trademarksand trade names, ongoing field service and public rela-tions support, training, and vendor purchasing programs.In addition, an inter-office referral network provides itsfranchisees with international recruiting capabilities infulfilling customer requirements.

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CHWFBU-MWS-CX019.6

Reporting SegmentsThrough December 31, 2006, the Company operated throughfour segments: Business Solutions, AndersElite, Todays Staffingand Management Recruiters International. See Note 20 to theconsolidated financial statements for more information on theCompany’s reporting segments. Beginning in the first quarter of2007, the Company will separately report CDI Engineering Sol-utions and CDI IT Solutions. These services are currently includedwithin the Business Solutions segment. This change reflects theCompany’s new operating organization effective January 1,2007 and it should provide investors with greater clarity regard-ing the Company’s engineering versus its IT outsourcing revenueand operating profit. The following business descriptions do notgive effect to this new organizational structure.

Business Solutions (“BS”)

BS provides project outsourcing, staffing services and perma-nent placement solutions to customers seeking engineering,design, consulting, information technology services, and pro-fessional personnel, from its 61 offices in the United States and8 international offices in Canada and Germany. Approximately13%, 9% and 7% of BS’s total revenue was generated outsidethe United States in 2006, 2005 and 2004, respectively.

ServicesBS offers its services to customers through the following tar-geted verticals:

‰ CDI-Process and Industrial (“P&I”)—Provides a full rangeof engineering, project management, design, pro-fessional staffing, and outsourcing solutions to firms intwo different sectors: the process sector that includesfirms in oil, gas, alternative energy and chemicals; andthe industrial sector, covering firms in power generationand energy transmission, telecommunications, and heavymanufacturing.

‰ CDI-Information Technology Services—Provides IT staffingand IT outsourcing solutions to a broad range of primarilyservice-based industries.

‰ CDI-Aerospace—Provides a full range of engineering,design, project management, professional engineeringstaffing, and outsourcing solutions to both the commer-cial and military aerospace markets.

‰ CDI-Government Services—Focuses on providing engineer-ing, design, and logistics services to the defense industry.

‰ CDI-Life Sciences—Offers design, validation, projectmanagement, engineering, professional staffing, andoutsourcing solutions to customers in the pharmaceut-ical, bio-pharmaceutical, and regulated medical servicesindustries.

High value-added engineering services typically involve manag-ing a discrete portion or portions of a customer’s capital project,

including, but not limited to, preliminary or detailed plantdesign and construction management, validation and commis-sioning of a facility, and lifecycle support. To the extent suchactivities entail design and planning work, they are typicallyperformed at CDI’s offices. However, construction manage-ment, validation, commissioning, and lifecycle support activitiesare generally performed on-site at customers’ facilities.

BS offers a wide range of project management, outsourcingservices, and technical consulting services to customers in hightechnology and capital-intensive vertical markets. In addition, BSprovides IT outsourcing services such as infrastructure manage-ment, enterprise support services, and technology advisory serv-ices. BS performs these engagements under contracts that aregenerally more than a year in duration.

In providing IT outsourcing services, this segment usually pro-vides its own employees to the customer’s technical depart-ment, and manages and monitors the results of thedepartment. In most instances, the managed department islocated on-site at the customer’s premises, but in some casesthe customer may prefer an off-site location. In this case, thesegment may maintain a stand-alone operation.

BS’s staffing service is tailored to the needs of the customer.The most basic service provides skilled professionals to work at asingle customer location on a temporary basis. In providingthese services, the segment recruits and hires employees andprovides personnel to customers for assignments that, on aver-age, last close to one year. BS performs the vast majority ofthese services at the customers’ facilities. Customers use thesegment’s employees to meet peak period personnel needs, tofill in for employees who are ill or on vacation, to provide addi-tional capabilities in times of expansion and change, and towork on projects requiring specialized skills. At the end of theproject, BS assigns the employees to another project for thecustomer, assigns the employees to perform services for anothercustomer, or terminates the employment of the employees.

This segment’s highest-value staffing service is customizedmanaged staffing solutions, under which BS oversees the cus-tomer’s entire contract staffing needs as well as certain humanresource functions required to manage the customer’s contractworkforce. In these instances, BS frequently establishes on-siteoffices at one or more of the customer’s facilities, provides staff-ing and ties that office into the segment’s business systems. Ifdesired by the customer, managed staffing services utilizeweb-based technology to help accelerate and streamline theprocurement, management, and supervision of contractemployees. BS is responsible for administrative matters, benefitsand employment taxes for these temporary employees.

BS also provides permanent placement services to meet theneeds of its customers. Customers provide a position specifica-tion to BS and then candidates are sourced via traditional adver-tising, through the Company’s website, networking, public jobboards or targeted recruiting. BS also provides outsourced

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management of the entire permanent hiring process through-out an organization and can scale-up to meet the needs ofnational and international organizations utilizing skilled recruit-ment specialists and leading edge technology. BS can offerassessment services to study a client’s permanent placementhiring processes and provides recommendations to improve crit-ical hiring metrics. Those metrics include time to hire, cost tohire, and quality of hired candidate.

PricingBS generally prices its project outsourcing services using amark-up or a multiplier of its employees’ hourly rates of pay orbill rates. Contracts generally do not obligate the customer topay for any fixed number of hours. To a lesser extent, BS pricesthese services on a fixed-price or full time equivalent basis.

For the majority of its temporary and managed staffing con-tracts, BS determines the pricing based on mark-ups of itsemployees’ hourly rates of pay or bill rates. Contracts generallydo not obligate the customer to pay for any fixed number ofhours. Generally, the customer has the right to terminate thecontract on short notice. BS maintains the right to terminate itsstaffing employees at will.

Customers typically invite several companies to bid for contracts,which are awarded primarily on the basis of prior performance,value-added services, technological capability and price. Manytimes customers grant multi-vendor contracts.

Permanent placement revenues are contingent upon filling anassigned position. If the customer hires the candidate, BSreceives a fee based upon an agreed-upon rate, which generallyamounts to a percentage of the candidate’s first-yearcompensation.

All pricing is subject to negotiation and agreement with thecustomer.

Customers / MarketsBS’s management conducts marketing activities to ascertainopportunities in specific vertical markets and geographicalareas. Each office assists in identifying the potential markets forservices in its geographic area and develops that marketthrough personal contact with existing and prospective custom-ers. The segment’s operating management stays abreast ofemerging demand for services and expands or redirects theirefforts to take advantage of potential business in either estab-lished or new marketing areas.

The segment’s quarterly operating results are affected by theseasonality of its customers’ businesses. This seasonality is dueto customers’ plant closures and vacation and holiday sched-ules. Demand for BS’s staffing and project outsourcing servicesis typically subject to seasonal slowdown at the end of thefourth quarter and beginning of the first quarter of each year,as well as a modest downturn during heavy vacation periods inthe third quarter of each year.

Sales to one customer accounted for 13% of total segmentrevenue in 2006. The Company expects sales to this customerto continue to grow in the foreseeable future. Governmentalcontract service businesses represented approximately 8%, 7%and 8% of BS’s total segment revenues in 2006, 2005 and2004, respectively. Most of this business is in the GovernmentServices vertical, with the balance primarily in the IT vertical.

AndersElite (“Anders”)

Anders provides temporary and permanent candidates to cus-tomers in the built environment seeking staff in building, con-struction, and related professional services, through a networkof owned offices. The Company maintains 13 offices in theUnited Kingdom. The Company sources some candidates fromAustralia and New Zealand for the United Kingdom market. TheCompany also has two offices in Australia where it providestemporary and permanent candidates to customers. Customerprojects include architecture, building services, rail, commercialand industrial construction, consulting engineering, facilitiesmanagement, interior design, surveying, and town planningprojects in both private and government-funded capital infra-structure investments. In 2006, Anders generated approximately2% of its total revenue from its Australian operations.

ServicesAnders provides temporary workers at customer jobsites to workon customer projects. Anders contracts for the temporary work-ers’ services either with the individual workers directly or with alimited company which employs the worker. In the case ofindividual workers, Anders is responsible for related taxdeductions and national insurance contributions, whereas in thecase of limited company workers, the limited company employeris responsible for such deductions and contributions. Thecustomer has supervisory control and responsibility for perform-ance of the temporary workers. The period of assignmentdepends on the customer’s need for the individual worker’s skillsand can range from several days to many months. The averageduration ranges from 12 to 14 weeks. At the end of the project,Anders seeks to find the worker another assignment.

Additionally, Anders sources candidates to meet the permanentplacement requirements of its customers. Typically customersprovide a candidate specification to Anders. The candidate isthen sourced primarily through the Company’s website, acandidate database or referrals.

PricingAnders determines its pricing for the supply of temporary work-ers based on mark-ups of the hourly rates payable to thetemporary workers. Pricing is subject to negotiation and agree-ment with the customer. Arrangements with the customergenerally do not obligate the customer to pay for any fixednumber of hours. Permanent placement revenues are con-tingent upon filling an assigned position. If the customer hiresthe candidate, Anders receives a fee equal to a percentage ofthe candidate’s first year compensation.

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Customers / MarketsAnders finds contract and permanent candidates to fill its cus-tomers’ recruitment requirements through a variety of sources,which include Anders’ website, candidate networking, referralprograms, trade and press advertising, direct mail marketing,careers fairs and exhibitions, university road-shows, event spon-sorship, open days, international resourcing, commercialjob-boards and e-commerce initiatives across the internet.Anders’ primary markets include national and regional U.K.-based customers that operate within the public and privatesector. These customers span industrial, commercial, govern-ment and defense, housing, retail, and the rail industries. Thesegment’s quarterly operating results are affected by theseasonality of its customers’ businesses. This seasonality is dueto weather and daylight limitations, as well as governmentalbudget constraints. Demand for Anders’ staffing services isgenerally lower in the first quarter and fourth quarter of acalendar year and increases during the second and third quar-ters. Although Anders provides services to the governmentalsector, the segment has no significant dependency on gov-ernmental contracts. Governmental contract service businessesrepresented approximately 3%, 5% and 6% of Anders totalsegment revenues in 2006, 2005 and 2004. No one customerrepresented more than 10% of total segment revenue in 2006,2005 or 2004.

Todays Staffing (“Todays”)

Todays provides staffing and permanent placement services tocustomers seeking office administrative staff, legal pro-fessionals, and financial staff, through a network of 51company-owned and 4 franchised offices in 22 states and 10company-owned offices in Canada. Todays’ generated approx-imately 13%, 13% and 12% of its total revenue from withinCanada in 2006, 2005 and 2004, respectively.

ServicesTodays provides temporary and managed staffing services at itscustomers’ facilities by Todays’ employees who are hired towork on customer projects. The customer’s need for theindividual employee’s skills dictates the period of assignmentwhich can range from several days to many weeks. The averageduration of assignments is approximately seven weeks. At theend of the assignment, Todays assigns the employees toanother project for the customer, assigns the employees toperform services for another customer, or terminates theemployment of the employees.

Although services are provided in the customer’s facilities,Todays has responsibility for administrative matters andemployment taxes for these individuals. The customer retainssupervisory control and responsibility for the performance of theemployees’ services.

Additionally, Todays sources candidates to meet the permanentplacement requirements of its customers. Typically customers

provide a candidate specification to Todays. The candidate isthen sourced via advertising, local networking, referral pro-grams, public job boards or through the Company’s website.

PricingTodays determines its pricing based on mark-ups of its employ-ees’ hourly rates of pay. Pricing is subject to negotiation andagreement with the customer. The customer is generally notobligated to pay for any fixed number of hours. Permanentplacement revenues are contingent upon filling an assignedposition. If the customer hires the candidate, Todays receives afee generally equal to a percentage of the candidate’s first yearcompensation.

Todays supports four franchised offices and employs all of theirpersonnel (except the owner), including those temporaryemployees recruited by the franchised offices, and also bearsthe responsibility for billing services to customers. Franchiseesare responsible for selling services to customers, recruitingtemporary personnel, and administrative costs, such as staffcompensation, rent and utilities. The franchisee receives a por-tion of the gross profit in the form of a commission.

Customers / MarketsTodays has a significant presence in the Midwest and Southwestwith concentrations in certain metropolitan markets includingChicago, Dallas/Ft. Worth, Indianapolis, Tampa/St. Petersburgand Toronto. Todays serves a diversified customer base operat-ing in a broad range of industries including the banking, callcenter, energy, financial services, legal services, manufacturing,mortgage/loan processing, technology services, and tele-communications sectors. Todays’ long-standing customer baseincludes many Fortune 500 companies, in addition to numerouslocal retail accounts. Todays primary focus is on small tomedium-sized customers.

Customers retain Todays to supplement their existing work-forces, to meet peak manpower needs, and to staff specialprojects. National, divisional and regional management con-ducts marketing activities to ascertain opportunities in specificmarkets and geographical areas. Each office assists in identify-ing the potential markets for services in its geographic area anddevelops that market through personal contact with prospectiveand existing customers. Todays is recognized for the high qual-ity of its overall service as evidenced by a recent survey in whichover 95% of respondents rated the Company favorably.

The segment’s quarterly operating results are affected by theseasonality of its customers’ businesses. Demand for Todays’staffing services is generally lower in the first and third quartersof a calendar year and increases during the second and fourthquarters. Although Todays provides services to the gov-ernmental sector, the segment has no significant dependencyon governmental contract services. No one customer repre-sented more than 10% of total segment revenue in 2006, 2005or 2004.

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Management Recruiters International (“MRI”)

MRI is a franchisor, doing business as MRINetwork®, providingsupport services to its franchisees who engage in the search andrecruitment of administrative, technical, managerial, pro-fessional and sales personnel, as well as sales management andmarketing personnel, for employment by its franchisees’customers. The MRI franchisees provide permanent placementservices primarily under the following brand names: Manage-ment Recruiters, Sales Consultants, CompuSearch and Office-Mates 5. MRI Contract Staffing provides training andimplementation services for temporary staffing. In addition, MRIprovides consulting and back-office services to support thefranchisees’ pursuit of temporary staffing services.

As of December 31, 2006, MRI had approximately 800 fran-chised offices in the United States and two master franchiselicenses in the United Kingdom and Japan. On April 1, 2006,MRI sold an international master franchise to MRI WorldwideNetwork, whereby MRI assigned the rights to all of its existinginternational franchise agreements as well as the right to enterinto any new franchise agreements abroad, with the exceptionof existing or future franchises in Japan. The Company enteredinto a master franchisee agreement for the Japanese market in2004. MRI believes that over time the master franchisee, MRIWorldwide Network Limited, has the capability to expand theworldwide franchise network, thereby increasing the flow ofroyalty and franchise payments to MRI. The master franchiseeshave approximately 200 sub-franchisee offices in 35 countriesthroughout the world. MRI reported approximately 3%, 6%and 8% of its total revenue from sources outside the UnitedStates in 2006, 2005 and 2004, respectively.

ServicesThe franchise network receives MRI administrative supportprimarily from offices in Philadelphia, Pennsylvania and Cleve-land, Ohio for the domestic franchise operations and in theUnited Kingdom for the international franchise operations. Thebroad geographic scope of operations and underlying supportand related systems enables franchisees to provide theircustomers with worldwide permanent placement services.

PricingOngoing royalties and initial franchise fees are an importantcomponent of MRI’s revenues. MRI receives ongoing royaltyfees based on a contractual percentage of the franchisee’spermanent placement service fees and any other revenue col-lected. New franchise agreements generally have a term of 10years. Individual franchises and international master franchisesmay be acquired by qualified candidates both in the UnitedStates and internationally. Franchisees located in the UnitedStates pay an initial fee of approximately $85,000. MRI receivesa portion of the initial fee paid by new sub-franchisees locatedoutside the United States.

Under a franchise agreement, the franchisee is entitled to theuse of MRI’s intellectual property, such as trademarks and trade

names, as well as ongoing field service and public relationssupport, training, and vendor purchasing programs. Franchiseesalso have access to MRI’s extensive performance developmentcurriculum which is designed specifically for the recruitmentindustry, and an inter-office referral network which providesfranchisees international recruiting capabilities in fulfilling cus-tomer requirements. MRI does not control the business oper-ations of its franchisees.

In conjunction with MRI, franchisees also offer temporary staff-ing services to their customers in the areas of administrative,legal, finance, and other professions. Franchisees are respon-sible for selling these services to their customers and for recruit-ing temporary personnel. MRI employs the temporary personnelrecruited by the franchised offices and also provides billing andcollection services to customers. The franchisee receives a por-tion of the gross profit on the temporary staffing serviceaccounts.

Customers / MarketsMRI’s primary objective is to provide superior service, training,and support to its franchisees enabling them to add moresearch consultants and grow their businesses. Its secondaryobjective is to sell new franchises and renew existing franchises.New franchisees are brought into the MRI network primarily ona referral basis. The ability of MRI’s franchisees to competesuccessfully with other independently-owned contingentrecruitment firms is important to this segment’s prospects forgrowth.

The ability of an individual franchisee to compete and operatesuccessfully may be affected by the location and service qualityof its office, the number of permanent placement officesoperating in a particular industry segment, community reputa-tion, and other general and local economic factors. The poten-tially negative effect of these conditions on this segment’soperating results is generally reduced by the diverse geo-graphical locations of its franchisees. MRI’s business is notdependent on any single franchisee.

Other Information

CompetitionThe Company competes in global, national, regional, and localmarkets with numerous engineering and information technol-ogy outsourcing companies and with temporary staffing andpermanent placement firms. All segments of the Company’soperations face competition in attracting both customers andhigh-quality specialized employment candidates. The temporaryand permanent placement businesses are very competitive andhighly fragmented, with limited barriers to entry into the mar-ket. In many areas, the local companies are the strongest com-petitors. Price competition among companies in CDI’s industryand pricing pressures from customers are significant. Thenumber of customers who consolidate their purchases ofengineering and IT outsourcing and staffing services with a sin-gle provider or with a small number of providers has been

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increasing. This trend to consolidate purchases can make itmore difficult for the Company to obtain or retain customers.The Company believes it derives a competitive advantage fromits long experience with and commitment to the industries itserves, long-term relationships with its customers, technicalcapabilities, national presence, and various marketing activities.

In 2006, some of CDI’s largest competitors included: Aerotek,Inc., Belcan Corporation, CIBER, Inc., Computer Task Group,Inc., Day & Zimmerman, Inc., Hays plc, Jacobs EngineeringGroup Inc., Kelly Services, Inc., Manpower Inc., MPS Group, Inc.,The Shaw Group Inc., Spherion Corporation and VoltInformation Sciences, Inc.

Safeguards—Business, Disaster and Contingency PlanningCDI has a number of safeguards to protect the Company fromvarious system-related risks. Given the significant amount ofdata generated in the Company’s key processes includingrecruiting, payroll, and customer invoicing, CDI has establishedredundant processing capability within the Company’s primarydata center. This redundancy mitigates the risks related tohardware failure. Additionally, CDI has contracted with a third-party provider to restore its primary data center operations inthe event of a disruption. Finally, the Company maintains sitedisaster plans for a majority of its operating offices as well asmaintaining data back-up requirements throughout the Com-pany.

EmployeesAs of December 31, 2006, CDI had approximately 1,700 staffemployees. In addition, CDI had approximately 16,000 employ-ees and workers engaged as billable personnel. The number ofbillable employees and workers varies in relation to the numberof projects and assignments in progress at any particular time.

Access to Company Information

The Company electronically files its Annual Report on Form10-K, Quarterly Reports on Form 10-Q, Current Reports onForm 8-K, and all amendments to those reports, with the Secu-rities and Exchange Commission (“SEC”). The public may readand copy any of the reports that are filed with the SEC at theSEC’s Public Reference Room at 450 Fifth Street, NW, Wash-ington, DC 20549. The public may obtain information on theoperation of the Public Reference Room by calling the SEC at1-800-SEC-0330. The SEC maintains an Internet site(http://www.sec.gov) that contains periodic reports, proxystatements, information statements, and other informationregarding issuers that file electronically.

CDI makes available, free of charge, through its website or byresponding to requests addressed to the Company’s Vice Presi-dent of Corporate Communications, its Annual Report on Form10-K, Quarterly Reports on Form 10-Q, Current Reports on Form8-K, and all amendments to those reports filed by the Companywith the SEC pursuant to Sections 13(a) and 15(d) of the Secu-rities Exchange Act, as amended. These reports are available assoon as reasonably practicable after such material is electronically

filed with or furnished to the Securities and Exchange Commis-sion. CDI’s website address is http://www.cdicorp.com. CDI postsits audit committee, compensation committee, governance andnominating committee charters, corporate governance principles,and code of conduct on the Company’s website. Theinformation contained on the Company’s website, or on otherwebsites linked to the Company’s website, is not part of thisdocument.

Item 1A. Risk Factors

CDI’s business involves a number of risks, many of which arebeyond its control. The risks and uncertainties described belowcould individually or collectively have a material adverse effecton the Company’s business, assets, profitability or prospects.While these are not the only risks and uncertainties the Com-pany faces, management believes that the more significant risksand uncertainties are as follows:

Economic downturns and capital spending cuts by theCompany’s customers may result in the loss of revenues andprofitability.The demand for the Company’s services is highly dependentupon the state of the economy and the level of capital spendingby the Company’s customers. The pace of customer capitalspending programs, new product launches and similar activitieshave a direct impact on the need for project outsourcing andboth temporary and permanent employees. Any deterioration inthe economic condition of the United States or any of the for-eign countries in which the Company does business, or in anyspecific industry, could have a negative effect on the Company’sbusiness, financial condition, cash flows, or results of operations.

CDI is engaged in a highly competitive business. Pricingpressures and increasing consolidation of purchasing by ourcustomers could reduce our market share and profits.The staffing and professional services businesses are highlycompetitive and fragmented, with limited barriers to entry forstaffing services. CDI competes in global, national, regional, andlocal markets with numerous engineering and IT outsourcingcompanies and with temporary staffing and permanent place-ment firms. Price competition among companies in CDI’sindustry and pricing pressures from customers are significant.The number of customers which consolidate their purchases ofengineering and IT outsourcing and staffing services with a singleprovider or with a small number of providers has risen consid-erably. This trend to consolidate purchases can make it moredifficult for the Company to obtain or retain customers. TheCompany could also face the risk that certain customers maydecide to provide similar services internally. Additionally, pricingpressures have intensified as customers have continued to com-petitively bid new contracts. This trend is expected to continuefor the foreseeable future, which could limit CDI’s ability tomaintain or increase its market share or profitability.

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The Company’s continued success is dependent on its ability tohire and retain qualified personnel.CDI depends upon its ability to attract qualified personnel whopossess the skills and experience required by its customers andto successfully bid for new customer projects. CDI must con-tinually evaluate its base of available qualified personnel to keeppace with changing customer needs and emerging tech-nologies. Competition for individuals with proven professionalor technical skills always exists, and the demand for suchindividuals (particularly in certain engineering disciplines andgeographic areas) is expected to remain very strong in the fore-seeable future. There is always uncertainty whether qualifiedpersonnel will continue to be available to CDI in sufficientnumbers and on terms of employment acceptable to CDI.

CDI faces competition from offshore outsourcing companies,which may result in a loss of market share and reducedprofitability.There is increasing pressure on companies to outsource certainareas of their businesses to low-cost offshore outsourcing firms.Many engineering and IT outsourcing and staffing companiesalready have or are seeking an offshore solution to support theirtechnology and business process functions, and as a result, asignificant amount of technology and engineering project andstaffing work may be replaced by offshore resources. CDI hasestablished partnering arrangements with offshore companies toprovide lower cost options to its customers. Conducting businessthrough offshore arrangements entails additional complianceand regulatory issues and may result in additional costs. Changesin the supply and demand for offshore personnel with the train-ing to perform the IT and engineering services sought by CDI’scustomers, as well as other factors affecting offshore labor costs,could raise CDI’s costs which would put pressure on our margins.Also, other offshore solution providers could develop direct rela-tionships with CDI’s customers resulting in a significant loss ofthe Company’s market share and revenue.

Changes in government regulations could result in loss ofbusiness and/or increased costs.CDI’s business is subject to regulation or licensing in manystates and in certain foreign countries. There can be no assur-ance the Company will be able to continue to obtain all neces-sary licenses or approvals or that the cost of compliance will notprove to be material in the future. Any inability to comply withgovernment regulation or licensing requirements, or increase inthe cost of compliance, could materially adversely affect theCompany. Changes in government regulations could result inthe imposition of new or additional benefits, licensing or taxrequirements. There can be no assurance that CDI would beable to increase the fees charged to its customers in a timelymanner or in a sufficient amount to cover increased costs as aresult of any of the foregoing. Staffing services entail employingindividuals on a temporary basis and placing such individuals incustomers’ workplaces. Therefore, increased government regu-lation of the workplace or of the employer-employee relation-ship could materially adversely affect the Company.

The outcome of pending and future claims and litigation couldhave a material adverse effect on the Company’s business.From time to time, various types of legal claims arise in con-nection with the ordinary course of CDI’s business. Employeesof the Company may make a variety of claims including work-place injury claims and employment-related claims such as dis-crimination, harassment, and wage and hour claims. Since theCompany’s staffing business involves employing individuals on atemporary basis and placing them in customer workplaceswhere CDI has limited ability to control the workplace environ-ment, these types of claims may arise more frequently in thosebusiness operations. The Company’s customers may makeclaims based on the Company’s alleged failure to perform inaccordance with contract requirements. Since the Company’sproject business often involves responsibility to produce speci-fied deliverables, these types of claims may arise more fre-quently in those business operations. Customers in the staffingbusiness may allege claims based on the conduct of staffingemployees assigned to the customer’s worksite. Customers andsubcontractors may make claims alleging the Company’s failureto abide by certain contract provisions. In addition, the Com-pany is subject to possible government claims or fines for viola-tions of various laws. See Note 13 to the consolidated financialstatements for more information.

CDI has significant payroll-related costs, such as workers’compensation, unemployment taxes and health benefits, whichare subject to increases caused by government regulation andother factors, and such increases could reduce its profits.In conducting its business, CDI is required to pay a number ofpayroll and related costs and expenses, including unemploy-ment taxes, workers’ compensation and medical insurance forits personnel. Unemployment insurance premiums paid byemployers typically increase during periods of increased levels ofunemployment. Workers’ compensation costs may increase inthe future if states raise benefit levels and liberalize allowableclaims. The Company self-insures a portion of the exposure forlosses related to workers’ compensation. The Company hasestablished reserves for workers’ compensation claims based onhistorical loss statistics and periodic independent actuarial valu-ations. While management believes that its assumptions andestimates are appropriate, significant differences in actualexperience or significant changes in assumptions may materiallyaffect the Company’s future financial results. CDI’s future earn-ings could be adversely affected if it is not able to increase thefees charged to customers to absorb the increased costs relatedto unemployment insurance, workers’ compensation and medi-cal benefits. Also, its future earnings could also be adverselyaffected if state governments successfully challenge its prioryear unemployment experience ratings.

The Company depends upon the continued service of its seniormanagement personnel. The loss of key personnel could have amaterial adverse effect on the Company’s business.The Company’s operations depend on the continued efforts ofits executives and senior management. The loss of key members

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of our management team may cause a significant disruption tothe Company’s business. CDI also depends on the performanceand productivity of its local managers and sales and recruitingpersonnel. The Company’s ability to attract and retain newbusiness is significantly affected by local relationships and thequality of service rendered. The loss of key managers and fieldpersonnel may also jeopardize existing customer relationships,which could cause revenues to decline.

The Company may experience adverse consequences arising outof an ongoing investigation by the U.K. Office of Fair Trading.In June 2006, the United Kingdom’s Office of Fair Trading(“OFT”) opened an investigation into alleged anti-competitivebehavior by Anders and a number of its competitors in the U.K.construction recruitment industry. The allegations being inves-tigated include, among others, the competitors agreeing tominimum fees in their contracts with U.K. intermediary recruit-ment companies and declining to work with one particular U.K.intermediary recruitment company. Anders is cooperating withthe OFT in the investigation under the OFT’s corporate leniencyprogram. It is likely that the OFT will ultimately impose a fine onAnders. Although it is too early in the process to determine withany reliability the amount or materiality of that fine, the finecould be material and this matter could have a material adverseeffect on the Company’s financial position and results of oper-ations. It is also possible that third-party civil lawsuits may befiled against Anders in connection with this matter. Anderscould incur significant legal fees in connection with the OFTinvestigation and in defending any third-party lawsuits. Fur-thermore, this matter and the related publicity could adverselyaffect the reputation of Anders and the Company. Seniormanagement at Anders and the Company may need to devotea significant amount of time with regard to this matter, whichcould distract them from the operation of the business. TheCompany has not made any provision for any fine or otherliabilities relating to this matter in the Company’s consolidatedfinancial statements.

The Company bears the risk of cost overruns in fixed-pricecontracts.CDI, within its Business Solutions segment, enters into fixed-price contracts with customers, primarily for engineering projectservices. Revenue recognized under fixed-price contractsaccounts for less than 5% of consolidated revenue in each ofthe past three years. Under these fixed-price contracts, pricesare established based on cost and scheduling estimates, whichin turn are based in part on assumptions about the prices andavailability of skilled personnel, equipment, and materials. If theCompany’s price estimates for a particular project prove to beinaccurate, then cost overruns may occur, and CDI could experi-ence reduced profits or a loss for that project and the Compa-ny’s reputation could be harmed. Cost overruns may also becaused by changes in the scope of the project after the contracthas been entered into or by a failure of the parties toadequately define and agree upon the entire scope of the

project at inception. In those cases, there may be disputesbetween the parties over who should pay for the cost overruns.The Company will attempt to negotiate change orders torecover the additional costs, but there can be no assurance thatthe Company will be successful in its negotiations with its cus-tomers. In general, fixed-price contracts can offer greater profitpotential but also entail more inherent risk—both in terms ofpossible financial losses and the potential for significant disputeswith customers—than contracts containing pricing on atime-and-materials basis.

CDI’s international operations expose the Company to foreigncurrency fluctuations that could increase its U.S. dollar costs, orreduce its U.S. dollar revenues.The Company is exposed to risks associated with foreign cur-rency fluctuations. CDI’s exposure to foreign currency fluctua-tions relates primarily to operations denominated in Britishpounds sterling, Euros and Canadian dollars. Exchange ratefluctuations impact the U.S. dollar value of reported earningsderived from these foreign operations as well as the carryingvalue of CDI’s investment in the net assets related to theseoperations. From time to time, the Company engages in hedg-ing activities with respect to its foreign operations.

CDI relies on outside suppliers to perform certain administrativeservices.CDI outsources certain data processing, payroll and other admin-istrative functions to companies that specialize in performingthose services. The failure of such outside service providers toadequately perform such services could have a material adverseeffect on CDI’s business and operations.

If CDI fails to maintain an effective system of internal controlsover financial reporting, it may not be able to accurately reportits financial results or prevent fraud. As a result, investors couldlose confidence in the Company’s financial reporting, whichwould harm its business and the trading price of its stock.CDI identified a material weakness in its internal controls overfinancial reporting at the end of 2004 and 2005. Those weak-nesses have been remediated, and as of December 31, 2006,management has determined that the Company’s internal con-trols over financial reporting are effective. However, if in thefuture the Company fails to maintain an effective system ofinternal controls, it may not be able to accurately report finan-cial results or prevent fraud. As a result, investors could loseconfidence in its financial reporting, which would harm its busi-ness and the trading price of its stock.

Future acquisitions, if any, may not be successful.The Company may selectively pursue acquisitions as an elementof its growth strategy, but it can not provide assurances that itwill be able to locate suitable acquisitions or that it will be able toconsummate any such transactions on terms and conditionsacceptable to the Company, or that such transactions will besuccessful. Acquisitions involve a number of risks, including thediversion of management’s attention from its existing operations,

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the failure to retain key personnel or customers of an acquiredbusiness, the assumption of unknown liabilities of the acquiredbusiness, and the inability to successfully integrate the business.There can be no assurance that any future acquired businesseswill generate anticipated revenues or earnings.

Disasters could interfere with our ability to operate our business.Various types of natural or man-made disasters could interferewith the Company’s continued ability to operate its businessnormally. For example, the Company’s ability to protect its datacenters and information systems against damage from fire,power loss, telecommunications failure, and other disasters iscritical. In order to provide many of its services, CDI must beable to store, retrieve, process, and manage large databases andperiodically expand and upgrade its capabilities. Any damage tothe Company’s data centers or any failure of the Company’stelecommunication links that interrupts its operations or resultsin an inadvertent loss of data could adversely affect CDI’s abilityto meet its customers’ needs and their confidence in utilizingCDI for future services. While the Company has developed vari-ous backup plans and disaster recovery plans, there can be noassurance that the Company would be able to continue tooperate its business smoothly in the face of certain natural orman-made disasters. Such business interruptions could sig-nificantly harm CDI’s financial results and future prospects.

Certain of the Company’s customers operate in areas that maybe impacted by severe weather conditions.The Company services the oil, gas and chemical industries, whichhave a significant concentration of activities in the Gulf Coast ofthe United States. This area can be impacted by severe weather,negatively impacting our customers and our ability to serve them.

The Company may not be able to obtain the insurancecoverages necessary to manage its risks.The Company relies on insurance to help manage its risks andto limit the Company’s exposure to significant claims. Thefuture availability and cost of such insurance is subject to mar-ket forces and CDI’s claims experience. There can be no assur-ance that the Company can always obtain and maintainappropriate insurance coverage in order to effectively managethe risks of its business.

A significant portion of the Company’s common stock is ownedby related parties, and they could vote their shares in a way thatis adverse to the interests of other shareholders.Certain of CDI’s directors, and trusts for which some of theCompany’s directors serve as trustee, own a substantial portionof the Company’s outstanding common stock. By virtue of thisstock ownership, such shareholders have the power to sig-nificantly influence CDI’s affairs and are able to influence theoutcome of matters required to be submitted to shareholders forapproval, including the election of directors and the amendmentof the Company’s Articles of Incorporation or Bylaws. Suchshareholders could exercise influence over the Company in amanner adverse to the interests of CDI’s other shareholders.

Item 1B. Unresolved Staff Comments

Not applicable.

Item 2. Properties

The Company presently maintains its principal executive officesat 1717 Arch Street, Philadelphia, Pennsylvania 19103, inapproximately 29,000 square feet of leased office space underleases expiring in 2012 and 2013. The Company also maintainsoffices at 1801 Market Street, Philadelphia, Pennsylvania 19103,in approximately 50,000 square feet of leased office spaceunder a lease expiring in 2016.

During 2004, the Company vacated excess office space primarilyassociated with the contraction of its Life Sciences verticalwithin the BS segment and a portion of the former head-quarters of its MRI segment. In December 2006, a joint venture,in which the Company’s Business Solutions segment is a mem-ber, entered into a master services agreement with a customer.To support this business expansion, the Business Solutionssegment entered into a sublease arrangement to occupy thespace vacated by MRI in 2004. On a consolidated basis, the MRIportion of the liability no longer qualifies for accrual under SFASNo. 146 and the Company has reversed the remaining liabilitybalance of $0.8 million. Refer to Note 7 to the consolidatedfinancial statements for further information.

Some of the Company’s offices accommodate more than oneoperating segment. In such cases, square-foot usage is allocatedamong the segments primarily based on utilization.

Each reporting segment has numerous active facilities and loca-tions under operating lease agreements. Most of the leasedspace is devoted to sales, marketing and administrative func-tions, in-house services, and back-office functions. These facili-ties are leased for terms ranging from five to ten years. TheCompany believes that its facilities are adequate to meet itscurrent needs and future operations.

Item 3. Legal Proceedings

The Company has litigation pending which has arisen in theordinary course of business.

In June 2006, the United Kingdom’s Office of Fair Trading(“OFT”) opened an investigation into alleged anti-competitivebehavior by Anders and a number of its competitors in the U.K.construction recruitment industry. The allegations being inves-tigated include, among others, the competitors agreeing tominimum fees in their contracts with U.K. intermediary recruit-ment companies and declining to work with one particular U.K.

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intermediary recruitment company. Anders is cooperating withthe OFT in the investigation under the OFT’s corporate leniencyprogram. It is likely that the OFT will ultimately impose a fine onAnders. Although it is too early in the process to determine withany reliability the amount or materiality of that fine, the finecould be material and this matter could have a material adverseeffect on the Company’s financial position and results ofoperations. The Company has not made any provision for anyfine or other liabilities relating to this matter in the Company’s

consolidated financial statements as of or for the year endedDecember 31, 2006.

Item 4. Submission of Matters to a Vote of SecurityHolders

There were no matters submitted to a vote of security holdersduring the fourth quarter of the year covered by this report.

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Part II

Item 5. Market for Registrant’s Common Equity,Related Stockholder Matters and IssuerPurchases of Equity Securities

Market informationCDI’s common shares are traded on the New York StockExchange (trading symbol “CDI”). The high and low closingsales price per share of the Company’s common stock for eachquarter during the last two years are shown in the table below(all as reported by the Wall Street Journal), together with divi-dend information for each period.

High Low Dividends

2006

First quarter $28.99 $23.12 $0.11

Second quarter 30.45 27.40 0.11

Third quarter 29.10 18.26 0.11

Fourth quarter 26.60 19.36 0.11

2005

First quarter $22.25 $18.81 $0.11

Second quarter 23.00 20.79 0.11

Third quarter 29.99 21.90 0.11

Fourth quarter 31.10 25.82 0.11

DividendsThe declaration and payment of future dividends will be at thediscretion of the Company’s Board of Directors and will dependupon many factors, including the Company’s earnings, financialcondition and capital requirements.

ShareholdersAs of February 28, 2007, there were 456 shareholders ofrecord. However, a single record shareholder account mayrepresent multiple beneficial owners, including holders of sharesin street name accounts. Including those multiple owners, thetotal number of shareholders on February 28, 2007 approxi-mated 7,700.

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Comparative Stock PerformanceThe following chart sets forth the cumulative total shareholder return (assuming an investment of $100 on December 31, 2001 andthe reinvestment of dividends) for the last five fiscal years on (a) CDI stock, (b) the Standard & Poor’s (S&P) 500 Index, and (c) a peergroup index. The peer group selected by CDI consists of the following fifteen companies: Adecco S.A., Butler International Inc.,CIBER, Inc., Computer Horizons Corp., Computer Task Group, Inc., Heidrick & Struggles International, Inc., Jacobs EngineeringGroup Inc., Kelly Services, Inc., Korn/Ferry International, Manpower Inc., MPS Group, Inc., Robert Half International Inc., The ShawGroup Inc., Spherion Corporation and Volt Information Sciences, Inc.

2001 2002 2003 2004 2005 20060.00

20.00

40.00

60.00

80.00

100.00

120.00

140.00

160.00

180.00

200.00

Comparison of 5 Year Cumulative Total ReturnAssumes Initial Investment of $100

December 2006

CDI CORP S&P 500 Index - Total Return Peers

Year ended December 31,

2001 2002 2003 2004 2005 2006

CDI Corp. $100.00 $142.00 $172.39 $125.25 $163.44 $151.07S&P 500 Index—Total Return 100.00 77.89 100.23 111.13 116.57 134.98Peer Group 100.00 76.98 115.83 113.92 122.67 156.71

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Item 6. Selected Financial Data

The following is selected financial data derived from the Company’s audited consolidated financial statements for each of the lastfive years. The data should be read in conjunction with the Company’s consolidated financial statements (and related notes) appear-ing elsewhere in this report and with Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Oper-ations. The data presented below is in thousands, except for per share data.

2006 2005 2004 2003 2002

Earnings Data:Revenues $1,265,286 $1,133,584 $1,045,207 $1,060,181 $1,169,475

Earnings from continuing operations before cumulativeeffect of accounting changes, net of tax (1) $ 23,263 $ 13,957 $ 7,528 $ 21,244 $ 4,082

Discontinued operations - - - - 527Cumulative effect of accounting changes, net of tax (2) - (152) - - (13,968)

Net earnings (loss) $ 23,263 $ 13,805 $ 7,528 $ 21,244 $ (9,359)

Basic earnings (loss) per share:Earnings from continuing operations $ 1.17 $ 0.71 $ 0.38 $ 1.10 $ 0.21Discontinued operations - - - - 0.03Cumulative effect of accounting changes - (0.01) - - (0.73)

Net earnings (loss) $ 1.17 $ 0.70 $ 0.38 $ 1.10 $ (0.49)

Diluted earnings (loss) per share:Earnings from continuing operations $ 1.16 $ 0.70 $ 0.38 $ 1.07 $ 0.21Discontinued operations - - - - 0.03Cumulative effect of accounting changes - (0.01) - - (0.73)

Net earnings (loss) $ 1.16 $ 0.69 $ 0.38 $ 1.07 $ (0.49)

Cash dividends declared per common share (3) $ 0.44 $ 0.44 $ 2.40 $ 2.18 $ -

Balance Sheet Data:Total assets $ 413,119 $ 379,494 $ 359,019 $ 405,180 $ 432,774Shareholders’ equity 299,332 271,478 267,190 299,411 307,801

(1) On January 1, 2006, the Company adopted FAS 123 (R), Share-Based Payment, which requires all share-based payments toemployees to be recognized as an expense based on the estimated fair value of the award on the date of grant. In 2006, theCompany recognized $1.3 million of expense related to stock options. See Note 8 to the consolidated financial statements forfurther information on share-based payment.

(2) Effective December 31, 2005, the Company adopted FIN 47, Accounting for Conditional Asset Retirement Obligations, whichrequired the Company to recognize a liability for its obligation to return certain of its operating leased facilities to their originalcondition upon termination of the lease. The Company increased its leasehold improvements asset by $0.3 million, recognizedan asset retirement obligation of $0.5 million and a charge of $0.2 million.In 2002, the Company adopted SFAS No. 142, Goodwill and Other Intangible Assets, which required the Company to performannual impairment tests of goodwill. At the date of adoption of SFAS No. 142, the Company determined that approximately$21.4 million ($14.0 million, net of tax) of goodwill was impaired. The Company recorded a cumulative effect of accountingchange to reflect the write-off resulting from that impairment.

(3) In 2004 and 2003, the Company declared special dividends of $2.00 per common share.

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Item 7. Management’s Discussion and Analysis ofFinancial Condition and Results of Operations

Executive Overview

CDI demonstrated strong revenue growth of 11.6% for full year2006. The Company realized an increase in all four categories ofrevenue and at each of the Company’s reporting segments. Theincrease was due to a number of factors, including a relativelyhealthy economic environment, continued strength in hiringand employment levels, and increased capital spending by cus-tomers in the Company’s key business verticals. In addition,focused execution by sales and operations teams, key accountwins across a broad spectrum of accounts in both 2006 and thesecond half of 2005, and a growing demand for project out-sourcing and staffing services have contributed to significantgrowth in revenues.

CDI’s double-digit growth in net earnings was primarily drivenby the 11.6% revenue growth and a lower rate of operatingand administrative expenses. Also, the 2005 operations of theBS segment were negatively impacted by the Gulf Coast hurri-canes and start-up costs associated with major account wins.Operating and administrative expenses, as a percent of rev-enues, declined to 20.3% in 2006 from 21.3% in 2005. Thisdecline was principally attributable to continued cost contain-ment measures and higher productivity.

CDI’s cash balance increased 150% during 2006. Cash and cashequivalents increased from $13.4 million at December 31, 2005to $33.6 million at December 31, 2006. Net cash provided byoperations increased from $2.1 million for 2005 to $41.5 mil-lion for 2006, net cash used in investing activities decreasedfrom $17.0 million for 2005 to $13.4 million for 2006, net cashused in financing activities increased from $3.6 million for 2005to $8.8 million for 2006 and the Company experienced a pos-itive exchange rate effect on cash of $0.9 million in 2006 versusa negative effect of $0.8 million in 2005. Management believesthat CDI’s cash balances, combined with its availability under itsnew committed, unsecured $45.0 million line of credit, providesufficient resources to fund the Company’s operations.

CDI has begun to see the results of its long term growth strat-egy to focus sales and new business acquisition activity onhigher margin and higher value customer solutions. Criticalcomponents of the strategy implemented in 2006, and a keyfocus in 2007, include: leveraging existing single product rela-tionships with Fortune 500 clients to create long-term alliancerelationships; developing strategic off-shoring capabilities toleverage offshore labor economies and to provide clients withworldwide implementation capabilities; expanding the Compa-ny’s ability to provide permanent placement of technical pro-fessionals and managerial talent. In addition, the Companybelieves it must continue to focus on maintaining effective costdiscipline and strong control over its contracting process,managing its working capital, and upgrading its financial report-ing systems and controls.

In June 2006, the United Kingdom’s Office of Fair Trading(“OFT”) opened an investigation into alleged anti-competitivebehavior by Anders and a number of its competitors in the U.K.construction recruitment industry. The allegations being inves-tigated include, among others, the competitors agreeing tominimum fees in their contracts with U.K. intermediary recruit-ment companies and declining to work with one particular U.K.intermediary recruitment company. Anders is cooperating withthe OFT in the investigation under the OFT’s corporate leniencyprogram. It is likely that the OFT will ultimately impose a fine onAnders. Although it is too early in the process to determine withany reliability the amount or materiality of that fine, the finecould be material and this matter could have a material adverseeffect on the Company’s financial position and results of oper-ations. The Company has not made any provision for any fine orother liabilities relating to this matter in the Company’s con-solidated financial statements as of or for the year endedDecember 31, 2006.

Consolidated Results of Operations

2005 Fourth Quarter AdjustmentsIn compiling the Company’s results for the quarter endedDecember 31, 2005, management identified and corrected cer-tain errors that had occurred in previous financial periods. Bothrevenue and direct margin were reduced by $1.4 million due tothe write down of certain receivables, while expenses wereincreased by $0.1 million, thereby reducing pre-tax earnings by$1.5 million. Management evaluated the qualitative andquantitative impact of these corrections in accordance with gen-erally accepted accounting principles and determined that theeffect on the 2005 fiscal year and on any previous period was notmaterial to the Company’s consolidated financial statementstaken as a whole. The Company recorded the correction of theseerrors in the fourth quarter of 2005. The aforementioned errorsresulted in the overstatement of pre-tax income to the followingsegments in the periods indicated (in millions):

BusinessSolutions AndersElite Total

Nine months ended September 30, 2005 $0.1 $0.2 $0.3

Year ended December 31, 2004 0.1 0.1 0.2

Year ended December 31, 2003 1.0 - 1.0

Total $1.2 $0.3 $1.5

Business StrategyCDI’s strategic objective is to be a single source provider ofengineering and IT solutions, project management and pro-fessional staffing. These high value services enable CDI’scustomers to focus on their core competencies and drive profit-able growth and return on capital investment.

CDI’s business model is based on certain critical elements. CDIstrives to meet the needs of its customers through its ability todevelop cost effective engineering and IT solutions, to manage

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the implementation of complex projects and to provide highly-qualified technical, managerial and administrative personnel. Akey strategic objective of the Company is to focus more onhigher value, higher margin and longer cycle business, such asengineering project and solutions business and permanentplacement services. The Company is also focused on providingstaffing services that generate acceptable returns on capital. TheCompany is organized to support its vertical go-to-market strat-egy. The Company has developed more efficient business proc-esses, instituted cost containment measures and increasedproductivity. As a result, CDI believes it can generate, onincremental revenue, variable contribution percentage marginsin the 11% to 13% range.

Key Performance IndicatorsRevenue growth is favorably impacted by external factors suchas a strong business environment, an increase in capital spend-ing and low U.S. and U.K. unemployment rates. Improvingeconomic growth typically results in increasing demand forlabor. Low unemployment rates indicate relatively full employ-ment for the types of employees CDI customers hire on apermanent and contract basis. Internally, CDI’s ability to capital-ize on opportunities created by economic expansion, itsperformance on new and existing accounts, new contract and

account wins, and the ability to mitigate competitive pricingpressures will affect the Company’s ability to increase revenue.

Gross profit and gross profit margin reflect CDI’s ability to passthrough cost increases with appropriate margins and its abilityto control direct costs. While gross profit margin can shift as aresult of the mix of business, a focus on maintaining andimproving overall margins leads to improved profitability.Permanent placement revenue also has an impact on grossprofit margin. Since there are no direct costs associated withpermanent placement revenue, increases or decreases inpermanent placement revenue can have a disproportionateimpact on gross profit margin.

In addition the Company has established the following longerterm performance metrics and targets:

‰ Produce pretax return on net assets of 20% and redeployassets unable to meet this target,

‰ Generate operating margins of 5% through financialdiscipline and lean headquarters operations, and

‰ Derive at least 60% of revenues from higher margin,longer cycle business.

2006 versus 2005

Results of OperationsThe following table presents year-over-year revenues by service type along with some key metrics for 2006 and 2005 (percentagesare based on whole numbers):

2006 2005Increase

(Decrease)

(in millions) $% of Total

Revenue $% of Total

Revenue $ %

Revenues (1)

Staffing services $ 886.1 70.0% $ 796.4 70.3% $ 89.7 11.3%

Project outsourcing 316.3 25.0 277.3 24.5 39.0 14.1

Permanent placement and royalties 59.2 4.7 56.9 5.0 2.3 4.0

Franchise fees 3.7 0.3 3.0 0.3 0.7 23.9

$1,265.3 100.0% $1,133.6 100.0% $131.7 11.6

Gross profit $ 294.5 23.3% $ 262.6 23.2% $ 31.9 12.3

Operating and administrative expenses $ 257.5 20.3 $ 241.4 21.3 $ 16.0 6.6

Operating profit $ 37.0 2.9 $ 21.7 1.9 $ 15.3 70.8

Net earnings $ 23.3 1.8% $ 13.8 1.2% $ 9.5 68.5

Cash and cash equivalents $ 33.6 $ 13.4 $ 20.2 150.4

Cash flow provided by operations $ 41.5 $ 2.1 $ 39.4 NM%

After-tax return on shareholders’ equity (2) 8.2% 5.1%

Pre-tax return on net assets (3) 14.1% 9.3%

Variable contribution margin (4) 11.7% 13.9%

(1) Revenues for 2005 have been reclassified to conform to the current year’s presentation.

(2) Net earnings divided by the average shareholders’ equity

(3) Pre-tax earnings divided by average net assets. Net assets include total assets minus total liabilities excluding cash and income tax accounts.

(4) Year-over-year change in operating profit divided by year-over-year change in revenues.

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Revenues increased in all four categories of revenue and at eachof the Company’s reporting segments in 2006. This was due toa number of factors, including:

‰ Increase in IT staffing services due to ramp up with amajor alliance customer,

‰ Strong customer capital spending in the P&I, Govern-ment, Aerospace and Life Sciences verticals droveincreases in project outsourcing,

‰ Increase in staffing services due to increased constructiondemand in Anders and further expansion of contractstaffing at MRI,

‰ Increase in demand for permanent placements, especiallyin the Anders segment, and

‰ Increase in number of MRI franchises sold and the sale ofthe international master franchise.

The increase was partially offset by a reduction in royaltiesdue to the sale of the international master franchise.

The Company’s consolidated gross profit increased in 2006 ascompared to 2005. The increase in gross profit was primarilydue to the revenue growth discussed above. The overall grossprofit margin also increased in 2006 due primarily to:

‰ Higher mix of project outsourcing revenues,

‰ Increase in permanent placement revenues in Anders,

‰ Better management of state unemployment insurance(“SUI”) and workers’ compensation costs,

‰ An insurance refund of $0.7 million primarily related toworkers’ compensation, and

‰ The absence of strong Gulf Coast hurricanes in 2006.

The impact of the above items was partially offset by lowerroyalty revenues due to the sale of the international masterfranchise and continued higher mix of lower margin businessat Todays. Also, the gross profit was lower in 2005 due to acorrection of $1.2 million that related to prior years.

Consolidated operating and administrative expenses increaseddue primarily to:

‰ Higher staff salaries and incentive-based compensation of$10.4 million associated with the revenue growth dis-cussed above,

‰ Increased facilities costs of $2.5 million mainly associatedwith the P&I vertical expansion in Houston, TX andAnders expansion in the UK and Australia,

‰ Higher stock based compensation expenses of $1.4 mil-lion,

‰ Legal costs of $1.0 million associated with the OFT inves-tigation,

‰ Additional impairment charges of $0.6 million related toa decline in the fair value of an asset held for sale,

‰ Incremental spending related to the Company’s com-pliance and financial controls of $0.5 million, and

‰ Placement fees of $0.5 million associated with the hiringof new executives.

The increase in operating and administrative expenses was parti-ally offset by continued expense containment measures and the2006 reversal of a lease reserve amounting to $0.8 million.

Operating profit and operating profit margin increased in 2006as compared to the prior year. The increase is a result of the neteffect of those items discussed above.

The Company’s effective income tax rate decreased from 36.5%in 2005 to 36.2% in 2006. This decrease relates primarily torecognition of certain foreign research and development creditsrealized in the second quarter of 2006. See Note 11 to theconsolidated financial statements for further information con-cerning the Company’s income taxes.

Cash and cash equivalents increased from $13.4 million in 2005to $33.6 million in 2006. The Company was able to source asignificant amount of cash during 2006 due to higher profits,improved collections of accounts receivable and a decline inworking capital requirements because the start-up costs formajor account wins were incurred principally in 2005. Capitalspending for 2006 amounted to $13.5 million.

CDI utilized its unsecured line of credit during 2006; however,borrowings under the credit facility were repaid by year end.

Segment Discussion

Beginning in the first quarter of 2007, the Company will sepa-rately report CDI Engineering Solutions and CDI IT Solutions.These services are currently included within the Business Sol-utions segment. This change reflects the Company’s newoperating organization effective January 1, 2007 and it shouldprovide investors with greater clarity regarding the Company’sengineering versus its IT outsourcing revenue and operatingprofit. The following discussion does not give effect to this neworganizational structure.

Business Solutions (“BS”)

Business StrategyBS’s business model is a key factor in its continued growth andprofitability. BS pursues the development of long-term allianceswith its customers as a cost effective, single source provider ofengineering and IT outsourcing services and professional staff-ing. By working as a core supplier and partner with its custom-ers, BS is able to develop an understanding of its customers’overall business needs as well as the unique technical needs oftheir projects. This approach creates the opportunity for BS toprovide a greater and more integrated range of services to itscustomers to facilitate efficient project management, program

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integration, transition, and execution. The success of BS’s busi-ness strategy is dependent on maintaining and renewing itsexisting customers or contracts, continued capital spending byits major engineering and IT infrastructure customers, the abilityto win new contract awards and accounts and the availabilityand cost of labor. In addition, BS is strategically engaging inoffshore arrangements to lower its cost of services for clients, totap into a broader talent pool and to provide worldwide servic-ing capability for its global clients. Additionally, BS has madeinvestments in developing a permanent placement infra-structure to enable clients to access a single source for perma-nent placement across an entire organization.

Key Performance IndicatorsThe Company manages and assesses BS’s performance throughvarious means, with the primary financial and operational meas-ures including revenue growth, contract renewals, new contractwins, account growth, gross profit margin and operating profit.

Revenue growth reflects performance on both new and existingcontracts and accounts. Incremental increases in revenue willnot generally result in proportionate increases in costs, partic-ularly operating and administrative expenses, thus potentiallyimproving operating profit margins.

New contract and account wins are the primary drivers of futurerevenue and provide an assessment of BS’s ability to compete.New contract wins fluctuate from quarter to quarter dependingon the timing of new contracts as well as numerous externalfactors. BS employs strict financial and operational reviews inthe contracting process to evaluate risks and to seek to gen-erate appropriate margins and returns.

Gross margin reflects BS’s performance and ability to achievedesired pricing and control labor costs. BS’s focus on maintainingand improving overall margins has led to improved profitability.Gross margins can also shift as a result of the mix of business,with project business generally providing higher margins.

Results of OperationsThe following table presents year-over-year changes in revenuefrom each of BS’s verticals for 2006 and 2005:

2006 2005 (a)Increase

(Decrease)


Revenue $% of Total

Revenue $ %

RevenuesCDI-Process and

Industrial $370.5 44.7% $339.3 46.0% $31.2 9.2%CDI-Information

TechnologyServices 305.5 36.9 261.0 35.4 44.5 17.1

CDI-Aerospace 83.2 10.0 80.4 10.9 2.8 3.5CDI-Government

Services 58.1 7.0 51.5 7.0 6.6 12.7

CDI-Life Sciences 11.5 1.4 5.6 0.8 5.9 105.7

$828.8 100.0% $737.8 100.0% $91.0 12.3%

(a) Revenues for 2005 have been reclassified to conform to the current yearpresentation.

The P&I vertical focuses on small to medium-sized engineeringprojects within the process sector, which includes the oil refin-ing, chemical and alternative energy industries, as well as theindustrial sector, which includes power generation, tele-communications and heavy manufacturing. Typically, thesecustomers are large, multi-national companies that use multipleservice providers. Contracts are awarded based on the ability tomeet the specific requirements of each individual project. Theincrease in revenues was largely attributable to strong capitalspending by customers within the process sector, and to a lesserextent, within the industrial sector, resulting in both newaccount wins and a ramp-up of existing accounts. Althoughrevenues within the P&I vertical increased in 2006, the Com-pany continues to experience constraints on the labor pool forGulf Coast engineers.

The IT vertical provides a variety of staffing and outsourcingsolutions to optimize a client’s infrastructure and reduce overallIT costs, establish and improve service levels, and free up capitalfor strategic objectives. Services include network and systemssupport, help desk and call center operations, application main-tenance and development and consulting and project manage-ment. The IT staffing industry is highly competitive and issubject to strong pricing pressures from customers and com-petitors. New contracts are generally awarded through a for-malized competitive bid process. Revenues in 2006, within theIT Services vertical increased as compared to 2005. This increasewas primarily attributable to revenue generated from a majoralliance account win in the second half of 2005 as this accountcontinues to grow. All other IT Services revenue was down in2006 due mainly to the elimination of some smaller, low returnretail accounts and office closures.

The Aerospace vertical provides staffing and outsourcing serv-ices to the commercial and military aerospace industries, whichare dominated by major national and international conglom-erates. Revenues within the Aerospace vertical increased slightlyin 2006 due to international project work partially offset by adecrease in lower margin domestic technical staffing revenue.

The Government Services vertical focuses on providing servicesprimarily to U.S. Government agencies and prime contractors inthe shipbuilding, military aviation, and marine design industries.Revenue increases in 2006 were driven primarily by renewed U.S.federal government funding of a major U.S. Navy shipbuildingand ship design contract, as well as increased revenue from amajor national managed staffing contract awarded during 2005.

The Life Sciences vertical provides engineering design, procure-ment and construction management to customers in the phar-maceutical and biotechnology industries. Customers range fromstart-up entities to large multinational organizations. Life Scien-ces revenue increases were largely attributable to several newcontract wins awarded late in 2005 and in 2006.

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The following table presents 2005 to 2006 changes in revenueby category, cost of services, gross profit, operating and admin-istrative expenses, and operating profit for BS:

BS 2006 2005Increase

(Decrease)


Revenue $% of Total

Revenue $ %

Revenues (1)

Staffing services $508.3 61.3% $455.8 61.8% $52.5 11.5%

Project

outsourcing 316.3 38.2 277.3 37.6 39.0 14.1

Permanent

placement 4.2 0.5 4.7 0.6 (0.5) (10.4)

828.8 100.0 737.8 100.0 91.0 12.3

Cost of services 668.9 80.7 599.1 81.2 69.8 11.7

Gross profit 159.9 19.3 138.7 18.8 21.3 15.4

Operating and

administrative

expenses 131.0 15.8 123.0 16.7 8.1 6.6

Operating profit $ 28.9 3.5% $ 15.7 2.1% $13.2 84.2%

(1) Revenues for 2005 have been reclassified to conform to the 2006presentation.

BS’s revenues increased in 2006, with Project Outsourcing andStaffing Services both seeing double digit growth. The IT, Gov-ernment Services and P&I verticals all contributed to theincrease, with the increase in the major IT alliance account winfrom 2005 representing the largest percentage.

Project outsourcing revenues increased in 2006 primarily due toincreased demand in all the verticals, particularly in the P&I,Aerospace, and Life Sciences.

Volume increases in all the verticals contributed to the grossprofit increase in 2006, which was partially offset by a $0.5 mil-lion adverse arbitration judgment in the second quarter of2006. BS’s overall gross profit margin also increased in 2006primarily due to a larger mix of higher margin project out-sourcing business in the P&I and Life Sciences verticals. Thatchange was partially offset by increases in lower margin staffingservices and pricing pressures within the IT and GovernmentServices verticals related to new account wins in 2005. Also,2005 gross profit and gross profit margin were negativelyaffected by a $1.2 million correction of errors from prior years.

BS’s operating and administrative expenses increased in 2006primarily due to:

‰ Higher staff salaries and incentive-based compensation of$3.6 million associated with the increase in sales volumeand profit, primarily in the IT and P&I verticals,

‰ An increase in Houston area facilities, office and com-puter costs of $2.4 million to support the revenue growthin the P&I vertical,

‰ Increased legal fees of $0.4 million mostly due to thearbitration judgment discussed above, and

‰ Severance costs of $0.6 million mainly related to the ITvertical.

AndersElite (“Anders”)

Business StrategyAnders is focused on providing the highest quality candidateand recruitment services within the built environment. Anders’utilization of web-based recruiting is very effective, provides itwith a large pool of highly qualified candidates, and enhancesthe Company’s ability to filter candidates to meet specific cus-tomer needs.

Anders is generating new business growth by opening addi-tional offices in the U.K. and Australia. In addition to providinga pool of candidates to a tight U.K. labor market, the Australianoffices are also generating business from Australia-based cus-tomers.

Demand in the U.K. infrastructure sector continues to growwith the rebuilding of the country’s rail system, othergovernment-related projects, and private industry-related proj-ects. In addition, Anders anticipates that the 2012 LondonOlympics will provide opportunities for future revenue andoperating profit growth.

Key Performance IndicatorsAnders relies on various operational and financial metrics tomanage its business. Key metrics include direct margin byrecruiter and branch office, staff payroll costs as a percentage ofgross profit, and gross profit as a percentage of revenue.

Monitoring direct margin by recruiter and branch office enablesthe Company to focus on increasing productivity, therebyincreasing profit margins. Anders also monitors its staff payrollcosts as a percentage of gross profit to evaluate recruiter andbranch productivity. This allows the Company to identify themost efficient branches and to apply the methods used in thoseoffices to improve the performance of its other branches. Mon-itoring recruiter and branch performance allows the Companyto ensure that high levels of services are delivered to customers.

Gross profits reflect Anders’ performance and ability to achievedesired pricing and control labor costs. Gross margin may notincrease at the same percentage rate as revenue. A focus onmaintaining and improving overall margins leads to improvedprofitability. Permanent placement revenue, which representsapproximately 11.1% of Anders’ total revenue for 2006, alsohas a significant impact on gross margin. Since there are nodirect costs associated with permanent placement revenue,increases or decreases in permanent placement revenue canhave a disproportionate impact on gross profit margins.

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CHWFBU-MWS-CX019.6

Results of OperationsThe following table presents year-over-year changes in rev-enues, cost of services, gross profit, operating and admin-istrative expenses, and operating profit for Anders from 2006 to2005 in U.S. dollars:

Anders 2006 2005Increase

(Decrease)

(US dollars inmillions) $

% of TotalRevenue $

% of TotalRevenue $ %

Revenues


Permanent

placement 24.1 11.1 18.7 10.1 5.4 29.1

217.2 100.0 184.4 100.0 32.8 17.8

Cost of services 161.5 74.4 139.5 75.6 22.0 15.8

Gross profit 55.7 25.6 44.9 24.4 10.8 24.0

Operating and

administrative

expenses 48.0 22.1 39.5 21.4 8.5 21.5

Operating profit $ 7.7 3.5% $ 5.4 3.0% $ 2.3 41.9%

To more effectively discuss the comparative results of operationsof Anders for the years ended December 31, 2006 and 2005,the following table presents Anders’ results on a constant cur-rency basis (i.e., British Pounds—£):


(Decrease)

(British pounds inmillions) £

% of TotalRevenue £

% of TotalRevenue £ %

Revenues

Staffing services £105.2 88.9% £ 91.1 89.9% £14.1 15.5%

Permanent

placement 13.2 11.1 10.2 10.1 3.0 29.0

118.4 100.0 101.3 100.0 17.1 16.9

Cost of services 88.0 74.4 76.6 75.6 11.4 14.9

Gross profit 30.4 25.6 24.7 24.4 5.7 22.9

Operating and

administrative

expenses 26.2 22.1 21.7 21.4 4.5 20.7

Operating profit £ 4.2 3.5% £ 3.0 3.0% £ 1.2 38.3%

The increase in revenue was primarily due to:

‰ Increased productivity among recruiting and sales person-nel,

‰ Stronger customer demand in both staffing services andpermanent placement services,

‰ Increased permanent placements at higher average feesin 2006, and

‰ The expansion of U.K. operations through the opening ofadditional offices in the second and fourth quarter of2005 and a general expansion of its Australian operationsin 2006.

The increase in gross profit was primarily due to the increasedsales growth and improved productivity mentioned above andan increase in higher margin permanent placement revenue.

The increase in operating and administrative expenses waslargely due to:

‰ Higher staff salaries and incremental incentive-basedcompensation of £ 2.8 million associated with theincrease in sales volume and profit,

‰ An increase in bad debt reserves of £ 0.2 million toaddress specific credit exposures,

‰ Additional legal and professional costs of £ 0.3 millionassociated with the Office of Fair Trading investigation,

‰ Increased facilities costs related to the UK and Australiaoffice expansion of £ 0.3 million, and

‰ Higher advertising costs due to business expansion of£ 0.1 million.

Todays Staffing (“Todays”)

Business StrategyTodays provides temporary and permanent placement andmanaged staffing of administrative, financial, clerical and legalpersonnel to its customers. Todays focuses on providing thehighest quality candidate to fit the specific needs of thecustomer. This commitment to quality is reinforced by a processthat includes behavioral interviews, customized evaluations,comprehensive reference checks, and periodic employeeassessments, and is supported by a satisfaction guarantee poli-cy. Due to the quality control checks performed by Todays priorto placing the employee, the financial impact of this guaranteehas been immaterial.

Todays’ operations are organized into two service divisions:Temporary, which include both large, multi-location nationalaccounts and higher margin retail accounts (i.e., local and smallbusiness accounts) serviced in local branches or onsite at clients’premises, and Permanent Placement Solutions. Todays’ strategicgrowth objectives for market expansion include:

‰ Retain and expand services to existing customers,

‰ Target markets with strong growth characteristics in highmargin services, and

‰ Further develop legal and financial staffing lines as well aspermanent placement.

Revenues are favorably impacted by sustained economic recov-ery, strong GDP growth, and low U.S. unemployment rates.

Key Performance IndicatorsTodays monitors its performance through various operationaland financial measures, including weekly billable hours, revenuegrowth, permanent placement revenue, direct margin per hourand gross margin.

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CHWFBU-MWS-CX019.6

Weekly billable hours and revenue growth are impacted bychanges in market share, the ability to capitalize on oppor-tunities created by economic expansion, and performance onexisting accounts. Incremental increases in weekly billable hoursand revenue will not necessarily result in proportionate increasesin costs, particularly operating and administrative expenses, thuspotentially improving profit margins.

Permanent placement revenue is driven by the increase ordecrease in the number of placements. In some cases, anemployee is initially assigned to a customer on a temporarybasis, but is later hired by that customer. In those instances,Todays receives both staffing services revenue and a fee for theplacement. Permanent placement revenue represents approx-imately 2.6% of Todays’ total revenue for 2006. Since there areno direct costs associated with permanent placement revenue,increases or decreases in permanent placement revenue canhave a disproportionate impact on gross margin rates.

Gross margin reflects Todays’ performance and ability toachieve desired pricing and control labor costs. While grossmargin can shift as a result of the mix of business, a focus onmaintaining and improving overall margins leads to improvedprofitability. Todays’ margins have been negatively impacteddue to a mix shift to lower margin national accounts.

Results of OperationsThe following table presents year-over-year changes in revenues,cost of services, gross profit, operating and administrativeexpenses, and operating profit for Todays from 2005 to 2006:

Todays 2006 2005Increase

(Decrease)


Revenue $% of Total

Revenue $ %

Revenues

Staffing services $148.0 97.5% $145.7 97.7% $ 2.3 1.6%

Permanent

placement 3.9 2.6 3.4 2.3 0.5 16.1

151.9 100.1 149.1 100.0 2.8 1.9

Cost of services 115.5 76.1 112.4 75.4 3.1 2.8

Gross profit 36.4 24.0 36.7 24.6 (0.3) (0.7)

Operating and

administrative

expenses 32.4 21.3 34.3 23.0 (1.9) (5.6)


Todays’ revenue increases were primarily driven by:

‰ A general increase in bill rates, and

‰ Increased permanent placements.

The growth in revenue was unfavorably impacted by strong,competitive pricing pressures within the staffing servicesindustry.

The decrease in gross profit was due to a decrease in the vol-ume of hours partially offset by increase in gross profit per hour

and better state unemployment insurance management. Theoverall gross profit margin also dropped primarily due to:

‰ A shift in mix of business from higher margin retailaccounts to lower margin national accounts, and

‰ The effect of pay rate increases that could not be fullypassed on to customers.

The decrease in operating and administrative expenses wasprimarily due to expense containment measures resulting inlower recruitment, personnel and marketing expenses.

Management Recruiters International (“MRI”)

Business StrategyThe MRI network is one of the largest search and recruitmentorganizations in the world. The key to MRI’s success is deliveringvalue to its franchisees by providing products, services and busi-ness planning assistance to help maximize their business growthand productivity. MRI’s strategic growth objectives includeexpansion of current franchisees staff to include more searchconsultants, expansion of the international franchise networkand continued growth in underdeveloped U.S. market areas. InApril 2006, the Company sold an international master franchise.Under the sale agreement, MRI assigned the rights to all of itsexisting international franchise agreements as well as the rightto enter into any new franchise agreements abroad, with theexception of existing or future franchises in Japan. Althoughroyalties initially declined as a result of the sale, operatingexpenses have also been reduced, and this arrangement isexpected to be mildly accretive to operating profit. MRI believesthat the master franchisee has the capability to expand theinternational franchise network, thereby increasing the flow ofroyalty payments to MRI.

Factors affecting MRI’s revenues include a strong U.S. andglobal economy and low unemployment rates. Permanentplacement and royalty fees are driven by employer demand formid-to-upper level managerial, professional, and sales candi-dates, as well as the number of new franchise offices and fran-chise contract renewals. In 2006, several large franchisees chosenot to renew their contracts with MRI. MRI continues to focusits efforts on growing existing franchisees by redeploying itspersonnel to field service teams which will focus on maximizingcustomer contact and developing customer-level business plansto establish clear metrics and optimize network member per-formance. The redeployment will help drive maximum sustainedroyalty growth. Also during 2006, MRI was able to renegotiateseveral franchise agreements opening up under-penetratedareas and permitting the sale of additional franchises withinthose areas.

MRI currently provides back-office services that enable its franchi-sees to pursue temporary staffing opportunities. As part of MRI’sstrategy to strengthen the franchise network and improve fran-chise productivity, a larger number of franchised offices are

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CHWFBU-MWS-CX019.6

expected to use these services in the future. In 2006, the numberof franchisees using these services grew to 101 from 84 in 2005.

Key Performance IndicatorsMRI manages and assesses its performance through variousmeans, with the primary operational and financial measuresincluding weekly job orders, placements and billings, cashcollections, royalties, number of franchise offices, franchise salesand renewals, billable hours and revenue growth.

The number of franchise offices measure MRI’s overall marketpenetration, franchise sales measure MRI’s ability to expand itsmarket reach and renewals indicate MRI’s ability to maintain,and the franchisees’ satisfaction with, its network.

MRI gauges the strength of its franchise sales program by mon-itoring presentations, sales and closing percentage. The numberof presentations increased by 18% and the number of salesincreased 23% compared to 2005. This was reflected in thegrowth in franchise sales revenue noted below. The overall clos-ing percentage of presentations to sales approximated 60.0% inboth 2006 and 2005.

Billable hours and revenue growth in temporary staffing servicesreflect MRI’s performance in expanding the support serviceswithin the franchise network. Billable hours increased approx-imately 16.5% for the full year 2006 compared to 2005. Thisincrease is reflected in the growth in staffing services revenueindicated below.

Results of OperationsThe following table presents year-over-year changes in revenues,cost of services, gross profit, operating and administrativeexpenses, and operating profit for MRI from 2005 to 2006:

MRI 2006 2005Increase

(Decrease)


Revenue $% of Total

Revenue $ %

Revenues


Royalties 28.1 41.6 30.1 48.3 (2.0) (6.7)

Franchise fees 3.7 5.5 3.0 4.8 0.7 23.9

67.5 100.0 62.3 100.0 5.2 8.4

Cost of services 25.0 37.1 20.2 32.4 4.8 23.9

Gross profit 42.5 62.9 42.1 67.6 0.4 0.9

Operating and

administrative

expenses 27.8 41.2 27.2 43.7 0.6 2.3

Operating profit $14.7 21.7% $14.9 23.9% $(0.2) (1.6)%

MRI’s revenues increased in 2006 as a result of:

‰ Continued management efforts to increase the staffingservices business,

‰ Average bill rates for staffing services increased to $38.00per hour versus $32.80 per hour in 2005, and

‰ The number of franchise sales in 2006 increased to 38from 31 in 2005.

MRI’s revenue growth was unfavorably impacted by thedecrease in royalty revenue primarily due to:

‰ The sale of an international master franchise in April2006 and the related transfer of existing franchises to themaster franchisee which lowered royalties by $2.1 mil-lion, and

‰ Non-renewal, renegotiation and departure of severaldomestic franchises from the network.

These reductions in royalty revenue were partially offset by“U.S. same store” royalty growth of approximately 7.0%.

MRI’s gross profit increased in 2006 due to the volume changesdiscussed above. Overall gross profit margin decreased as aresult of the shift in business mix to lower margin staffing busi-ness and the sale of the international master franchise.


‰ Sales commissions increase of $1.5 million directly relatedto increased revenue in staffing services,

‰ Variable costs of $0.5 million directly related to increasedfranchise sales,

‰ $0.6 million of additional impairment charges on an assetheld for sale, and

‰ Increased legal charges of $0.3 million related to the saleof an international master franchise.

These increases were largely offset by a reduction in interna-tional business operating expenses due to the sale of theinternational master franchise noted above.

CorporateCorporate expenses totaled $18.1 million in 2006 as comparedto $17.3 million in 2005. The increase in corporate expenseswas the result of:

‰ Incremental spending of $0.5 million related to theCompany’s compliance and financial controls,

‰ Increased legal fees of $0.5 million related to the OFTinvestigation,

‰ Increased spending of $0.3 million on executive hiring,and

‰ Increased cost of tax consulting of $0.2 million.

These cost increases were partially offset by $0.8 millionrelated to the reversal of a reserve for real estate exit costs(see Note 7 to the consolidated financial statements).

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CHWFBU-MWS-CX019.6

Consolidated Results of Operations

2005 versus 2004The following table presents year-over-year revenues by service type along with some key metrics for 2005 and 2004.

2005 2004Increase

(Decrease)


Revenue $% of Total

Revenue $ %

Revenues (1)

Staffing services $ 796.4 70.3% $ 770.6 73.7% $ 25.8 3.3%

Project outsourcing 277.3 24.5 220.5 21.1 56.8 25.7

Permanent placement and royalties 56.9 5.0 49.9 4.8 7.0 14.1

Franchise fees 3.0 0.3 4.2 0.4 (1.2) (28.9)

$1,133.6 100.0% $1,045.2 100.0% $ 88.4 8.5

Gross profit $ 262.6 23.2% 245.4 23.5% $ 17.2 7.1

Operating and administrative expenses $ 241.4 21.3 237.5 22.7 $ 3.9 1.6

Operating profit $ 21.7 1.9 9.4 0.9 $ 12.3 130.9

Net earnings $ 13.8 1.2% 7.5 0.7% $ 6.3 84.0

Cash and cash equivalents $ 13.4 $ 32.7 $(19.7) (60.2)

Cash flow provided by operations $ 2.1 $ 12.3 $(10.2) NM%

After-tax return on shareholders’ equity (2) 5.1% 2.7%

Pre-tax return on net assets (3) 9.3% 4.6%

Variable contribution margin (4) 13.9% NM%

(1) Revenues for 2005 and 2004 have been reclassified to conform to the 2006 presentation.(2) Net earnings divided by the average shareholders’ equity(3) Pre-tax earnings divided by average net assets. Net assets include total assets minus total liabilities excluding cash and income income tax accounts.(4) Year-over-year change in operating profit divided by year-over-year change in revenues.

Revenues in three of the four categories of revenue and all fourCompany reporting segments increased in 2005. The improve-ment in consolidated revenues was driven primarily by a strongeconomic business environment and:

‰ Increased demand in project outsourcing services withinBS’s P&I vertical, as a result of significant capital spendingby customers within the oil, gas, and chemical industries,

‰ An increase in Todays’ and Anders’ staffing services rev-enue as investments in sales and recruiting capabilities in2004 contributed to revenue growth,

‰ Increase in demand for permanent placements, and

‰ An improvement in MRI’s staffing services revenue asmanagement expanded its efforts to support its fran-chised offices in pursuit of this business.

The increase in revenues was partially offset by declines in BS’sIT Services, Aerospace, Government Services, and Life Sciencesverticals. Although the IT Services vertical was awarded a majorpreferred-supplier contract in July 2005, the ramp-up of thecontract did not occur until late in the fourth quarter. Staffingservices revenues in both the IT Services and Aerospace verticalsdeclined due to strong pricing pressures from customers andcompetitors. In addition, the Government Services verticalexperienced a decline in its project outsourcing revenues due tothe delayed U.S. federal government funding of a U.S. Navyshipbuilding and ship design contract.

The increase in gross profit was primarily due to the revenuegrowth discussed above. However, the overall gross profit mar-gin fell slightly from the prior year due primarily to:

‰ Greater mix of lower margin business in BS, particularly inthe IT Services and Government Services verticals,

‰ A shift in the business mix to lower margin nationalaccounts in Todays,

‰ Higher state unemployment insurance (“SUI”) rates result-ing in higher costs which were not passed on to custom-ers, and

‰ Adjustments amounting to $1.2 million in connectionwith accounting errors that occurred in previous fiscalyears that were recorded in the fourth quarter of 2005.

This impact of the above items was partially offset byimproved gross profit and gross profit margin within Anders,due primarily to increases in higher margin permanentplacement revenues.

The increase in consolidated operating and administrativeexpenses is due primarily to:

‰ Higher staff salaries and incentive-based compensationassociated with the revenue growth discussed above,

‰ An increase in facilities costs associated with the P&I verti-cal expansion in Houston, Texas, and Anders expansion inthe U.K.,

23

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CHWFBU-MWS-CX019.6

‰ Contract start-up expenses associated with two majoraccount wins, one within the IT Services vertical and onewithin the Government Services vertical,

‰ Increased hiring within the Corporate accounting andfinance organization, and

‰ Incremental spending related to the Company’s com-pliance and financial controls.

The increase in operating and administrative expenses waspartially offset by:

‰ Lower net expenses and legal fees associated with certainlitigation, claims, and disputes in 2004 totaling $2.1 mil-lion,

‰ Lower net real estate exit costs of approximately $2.3million, and

‰ Continued expense containment measures.

Operating profit and operating profit as a percentage of rev-enues both increased compared to the prior year. Theseincreases are a result of the net effect of those items discussedabove.

The Company’s effective income tax rate increased from 23.9%in 2004 to 36.5% in 2005. The increase in the effective tax raterelates primarily to favorable resolution of prior year’s taxexposures in 2004. See Note 11 to the consolidated financialstatements for further information concerning the Company’sincome taxes.

Cash and cash equivalents decreased from $32.7 million in2004 to $13.4 million in 2005. The Company’s cash needsincreased during the year above the levels in recent years dueprimarily to higher working capital requirements driven by thehigher revenue run rate, new business ramp-ups, and start-upcosts for the major account wins in the IT Services and Govern-ment Services verticals. In addition, the Company’s capitalspending increased to $15.7 million in 2005 as compared to$7.8 million in the prior year. The increase in capital spendingwas due primarily to the continued development of a newrecruiting software application for BS, expansion of the HoustonEngineering Center facility in BS’s P&I vertical, andimplementation of new billing and payroll systems for Todaysand MRI. To meet these cash requirements, the Company uti-lized its unsecured line of credit during 2005; however, borrow-ings under the credit facility were repaid by year end.

Segment Discussion

Business Solutions (“BS”)The following table presents year-over-year changes in revenuefrom each of BS’s verticals for 2005 and 2004:

2005 2004Increase

(Decrease)


Revenue $% of Total

Revenue $ %

Revenues (1)

CDI-Process and

Industrial $339.3 46.0% $336.4 45.6% $ 56.9 20.5%

CDI-Information

Technology

Services 261.0 35.4 220.5 29.9 (14.4) (5.1)

CDI-Aerospace 80.4 10.9 86.0 11.7 (3.5) (4.1)

CDI-Government

Services 51.5 7.0 48.7 6.6 (1.2) (2.5)

CDI-Life

Sciences 5.6 0.8 9.2 1.3 (0.8) (8.7)

$737.8 100.0% $700.8 95.0% $ 37.0 5.3%

(1) Revenues for 2005 and 2004 have been reclassified to conform to the2006 presentation.

The P&I vertical focuses on cost competitive, small to medium-sized engineering projects within the process sector, whichincludes the oil refining and chemical industries, as well as theindustrial sector, which includes power generation, tele-communications and heavy manufacturing. Typically, thesecustomers are large, multi-national companies that use multipleservice providers. Contracts are awarded based on the ability tomeet the specific requirements of each individual project. Theincrease in revenues was largely attributable to strong capitalspending by customers within the process sector, and to a lesserextent, within the industrial sector, resulting in both newaccount wins and a ramp-up of existing accounts. As a result,BS increased the size and staffing of its Houston EngineeringCenter facility to support this growth and more efficiently meetthe needs of its customers.

The IT Services vertical focuses on providing staffing and out-sourcing services to a broad range of clients in the followingindustries: banking and finance, pharmaceutical, health care,local and state government, energy, power generation andinformation services support. The decrease in IT Services rev-enues is attributable to the highly competitive IT staffing industrywhich is subject to strong pricing pressures from customers andcompetitors. New contracts are awarded through a formalizedcompetitive bid process. Although the IT Services vertical wasawarded a major preferred-supplier contract in July 2005, it didnot produce significant revenue during the year. In addition,there was a decline in volume in some of IT’s managed staffingcontracts due to product line shutdowns, cutbacks, or offshoreoutsourcing. In response to this trend, management hasredirected sales and recruiting efforts to grow in targeted highermargin accounts and identified strong geographic markets.

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CHWFBU-MWS-CX019.6

The Aerospace vertical provides staffing and outsourcing serv-ices to the commercial and military aerospace industries, whichare dominated by several major national and international con-glomerates. Aerospace’s three largest customers representedapproximately 62% and 45% of Aerospace’s revenues in 2005and 2004, respectively. The decrease in Aerospace revenue isdue primarily to the completion of several projects during theyear and a decline in technical staffing revenue.

The Government Services vertical focuses on providing its serv-ices primarily to U.S. Government agencies and prime con-tractors in the shipbuilding, military aviation, and marine designindustries. The decrease in Government Services revenue wasdriven primarily by the delayed U.S. federal government fundingof a major U.S. Navy shipbuilding and ship design contract. Thedecrease in revenue was partially offset by several managedstaffing contracts awarded to Government Services during theyear. These managed staffing contracts are expected to favor-ably impact Government Services revenue in 2006.

The Life Sciences vertical provides architectural, engineering,procurement, construction management, commissioning andvalidation outsourcing and staffing solutions to pharmaceuticaland biotechnology clients. The Life Sciences revenue decline waslargely attributable to continued project delays and loss of busi-ness.

The following table presents year-over-year changes in rev-enues, cost of services, gross profit, operating and admin-istrative expenses, and operating profit for BS from 2005 to2004:

BS 2005 2004Increase

(Decrease)


Revenue 2004% of Total

Revenue $ %

Revenues (1)

Staffing

services $455.8 61.8% $477.4 68.1% $(21.6) (4.5)%

Project

outsourcing 277.3 37.6 220.5 31.5 56.8 25.7

Permanent

placement 4.7 0.6 2.9 0.4 1.8 62.9

737.8 100.0 700.8 100.0 37.0 5.3

Cost of services 599.1 81.2 567.0 80.9 32.1 5.7

Gross profit 138.7 18.8 133.8 19.1 4.9 3.7

Operating and

administrative

expenses (2) 123.0 16.7 122.4 17.5 0.6 0.5

Restructuring - - (0.2) (0.1) 0.2 -


(1) Revenues have been reclassified to conform to the 2006 presentation.(2) Effective January 1, 2006, the Company refined its method of allocating

shared services costs to more accurately reflect management and stafftime devoted to, and central costs attributable to, the reportingsegments. The allocation was based on a study performed on 2005activities, the time when these changes occurred.

The increase in project outsourcing revenue was due primarilyto strong capital spending by customers of the P&I vertical asnoted above. The decrease in staffing services revenue wasdriven primarily by declines within the IT Services vertical asnoted above, and to a lesser extent, by the revenue reductionsin the Aerospace and Government Services verticals as notedabove.

The increase in gross profit was primarily due to higher volumeand rate increases in the P&I vertical. However, the overall grossprofit margin fell slightly from 2004 due primarily to:

‰ Lower margin business in the Information TechnologyServices vertical,

‰ Adjustments amounting to $1.2 million in connectionwith accounting errors that occurred in previous fiscalyears and that were recorded in the fourth quarter of2005, and

‰ Higher SUI rates resulting in higher costs which were notpassed on to customers.

The decrease in gross profit margin was partially offset byhigher volume and margin in the P&I vertical.

The increase in operating and administrative expenses was aresult of:

‰ Higher staff salaries and incentive-based compensationassociated with the revenue growth discussed above,

‰ Contract start-up expenses associated with two majoraccount wins, one within the IT Services vertical and onewithin the Government Services vertical, and

‰ An increase in Houston area facility, office and computercosts to accommodate additional staff. This expansionwas necessary to support the revenue growth in the P&Ivertical noted above.

The increase in operating and administrative expenses waspartially offset by a $1.0 million reduction in allocatedcorporate and support services in 2005 and by lower netexpenses and legal fees associated with certain litigation,claims and disputes totaling $0.5 million in 2004 and lowertravel expenses in all verticals due to expense containmentmeasures instituted in 2005, with the exception of increasesin the P&I vertical due to the revenue growth noted above.Included in operating and administrative expenses in 2004was the reversal of a $1.0 million reserve for an exposurewhich never materialized.

25

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RR Donnelley ProFile LAN sawan0in 2*PMT 1C

TORFBU-MWS-CX019.6.18

AndersElite (“Anders”)The following table presents year-over-year changes in rev-enues, cost of services, gross profit, operating and admin-istrative expenses, and operating profit for Anders from 2004 to2005 in U.S. dollars:


(Decrease)

(US dollars inmillions) $

% of TotalRevenue $

% of TotalRevenue $ %

Revenues


Permanent

placement 18.7 10.1 15.9 9.6 2.8 17.6

184.4 100.0 166.1 100.0 18.3 11.0

Cost of services 139.5 75.6 126.1 75.9 13.4 10.6

Gross profit 44.9 24.4 40.0 24.1 4.9 12.3

Operating and

administrative

expenses 39.5 21.4 37.5 22.6 2.0 5.3


To more effectively discuss the comparative results of operationsof Anders for the years ended December 31, 2005 and 2004,the following table present Anders’ results on a constant cur-rency basis (i.e., British Pounds—£):


(Decrease)

(British pounds inmillions) £

% of TotalRevenue £

% of TotalRevenue £ %

Revenues

Staffing services £ 91.1 89.9% £82.1 90.4% £ 9.0 11.0%

Permanent

placement 10.2 10.1 8.7 9.6 1.5 17.2

101.3 100.0 90.8 100.0 10.5 11.5

Cost of services 76.6 75.6 68.9 75.9 7.7 11.2

Gross profit 24.7 24.4 21.9 24.1 2.8 12.7

Operating and

administrative

expenses 21.7 21.4 20.5 22.6 1.2 5.8

Operating profit £ 3.0 3.0% £ 1.4 1.5% £ 1.6 115.6%

The increase in revenue was due primarily to:

‰ Increased efficiency and productivity among recruitingand sales personnel. In 2004, there was significant turn-over and re-staffing of Anders recruiting and salespersonnel, which resulted in lower revenues, and

‰ Stronger customer demand in both staffing services andpermanent placement services.

The increase in gross profit was primarily due to the increasedsales growth and improved productivity mentioned above andan increase in higher margin permanent placement revenue.


‰ Higher facility costs of approximately £0.2 million due tothe opening of three additional offices,

‰ Incremental incentive-based compensation associatedwith the increase in sales volume, and

‰ Investments in new recruiting, sales, and managementpersonnel.

The increase in operating and administrative expenses waspartially offset by operating efficiencies and lower expensesassociated with legal claims and disputes in 2004 of £0.1million.

Todays Staffing (“Todays”)The following table presents year-over-year changes in revenues,cost of services, gross profit, operating and administrativeexpenses, and operating profit for Todays from 2004 to 2005:

Todays 2005 2004Increase

(Decrease)


Revenue $% of Total

Revenue $ %

Revenues


Permanent

placement 3.4 2.3 3.4 2.8 - -

149.1 100.0 122.3 100.0 26.8 21.9

Cost of services 112.4 75.4 89.6 73.3 22.8 25.4

Gross profit 36.7 24.6 32.7 26.7 4.0 12.2

Operating and

administrative

expenses 34.3 23.0 30.5 24.9 3.8 12.4


The increase in revenue was primarily driven by:

‰ Growth in national account wins as a result of invest-ments in sales and recruiting capabilities during 2004,and

‰ A strong business environment and relatively lowunemployment rates.

The increase in gross profit was primarily due to the revenuegrowth discussed above. The decrease in overall gross profitmargin was due primarily to:

‰ A shift in mix of business from higher margin retailaccounts to lower margin national accounts,

‰ Strong competitive pricing pressures within the staffingservices industry,

‰ No significant growth in the higher margin permanentplacement revenue, and

‰ Higher SUI rates resulting in higher costs which were notpassed on to customers.

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The increase in operating and administrative expenses was dueprimarily to an increase in staff salaries and incentive-basedcompensation which directly related to the increase in revenuediscussed above partially offset by operating efficiencies.

Management Recruiters International (“MRI”)The following table presents year-over-year changes in revenues,cost of services, gross profit, operating and administrativeexpenses, and operating profit for MRI from 2004 to 2005:

MRI 2005 2004Increase

(Decrease)


Revenue $% of Total

Revenue $ %

Revenues


Royalties 30.1 48.3 27.7 49.5 2.4 8.7

Franchise fees 3.0 4.8 4.2 7.5 (1.2) (28.6)

62.3 100.0 56.0 100.0 6.3 11.3

Cost of services 20.2 32.4 17.2 30.7 3.0 17.4

Gross profit 42.1 67.6 38.8 69.3 3.3 8.5

Operating and

administrative

expenses 27.2 43.7 30.3 54.1 (3.1) (10.2)

Restructuring and gain

on sale 0.0 - (1.3) (2.3) 1.3 -

Operating profit $14.9 23.9% $ 9.8 15.2% $ 5.1 51.9%

The increase in revenue was primarily attributable to:

‰ Expanded efforts by management to support the pursuitof staffing services revenue by the franchise offices, and

‰ An increase in permanent placement and royalty rev-enues due to increased demand in the U.S. market.

The increase in MRI’s revenues was partially offset by adecrease in franchise fees due primarily to the sale of a masterfranchise for the Japanese market which occurred in 2004.

The increase in gross profit was primarily due to the revenuegrowth noted above. The decrease in overall gross profit marginwas a result of the shift in business mix as lower margin staffingservices revenue increased at a higher rate than higher marginpermanent placement and royalty revenue.

Operating and administrative expenses decreased due to:

‰ Lower net real estate exit costs of approximately $1.7million,

‰ A reduction in facilities costs of $0.4 million as a result ofthe relocation of MRI’s administrative offices, and

‰ Expense containment measures instituted in 2004 result-ing in lower travel and office expenses.

In addition, MRI recognized $1.3 million of pre-tax gains result-ing from the sale of its company-owned offices which wasrecorded in 2004.

CorporateCorporate expenses totaled $17.3 million in 2005 as comparedto $16.8 million in 2004. The increase of $0.5 million in corpo-rate expenses was the result of:

‰ Increased hiring within the Corporate accounting andfinance organization of $0.4 million,

‰ Incremental spending related to the Company’s com-pliance and financial controls of $0.4 million,

‰ Increased cost of management incentive plans of $0.6million, and

‰ Increased cost of administrative expenses of $0.6 million.

The increase in corporate expenses was partially offset by adecrease in expenses associated with various legal settle-ments in 2004 totaling $1.5 million.

InflationDuring the years ended December 31, 2006, 2005 and 2004,inflation has been low and the Company’s margins haveremained relatively constant. The net effect of inflation on theCompany’s operations has not been material.

Liquidity and Capital Resources

CDI finances its operations primarily through cash provided byoperations. At December 31, 2006, the Company’s principalsources of liquidity consisted of $33.6 million of cash and cashequivalents, and $35.0 million of availability under the Compa-ny’s uncommitted, unsecured line of credit. CDI generates themajority of its revenues and resultant cash flows from severalactivities, as outlined below:

‰ Project management, technical engineering, andinformation technology outsourcing services to facilitatecustomers’ efforts to reduce costs and/or supportimportant growth initiatives,

‰ Temporary staffing to meet customers’ demand fortemporary staff augmentation,

‰ Permanent placement activities, and

‰ Initial franchise fees and ongoing franchise royalties.

Payrolls for the majority of billable employees are typically paidweekly and revenues for temporary staffing are recognizedcoincident with the payroll cycle. This schedule applies to themajority of CDI’s technical engineering business as well.Customers are invoiced weekly, semi-monthly, or monthly forstaffing services. Projects under fixed-price contracts areinvoiced when specific milestones are met or based on a peri-odic schedule. Customers are typically invoiced for projectmanagement, engineering and outsourcing services contractson a monthly basis. MRI generates revenues and cash flowsfrom franchise sales and from the collection of royalties as itsfranchisees collect cash from their customers for permanentplacement services.

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The Company’s cash needs increased as a result of businessexpansion during the early part of 2006. The Company utilizedits uncommitted, unsecured line of credit with a bank to meetthese cash requirements. During 2006, the Company’s out-standing borrowings ranged from $0.1 million to $16.0 million.Later in 2006, the Company generated sufficient cash flow fromoperations to fund its operations and pay down its line of credit.At December 31, 2006, there were no outstanding borrowingsunder this $35.0 million facility which expired on February 28,2007.

On February 28, 2007, the Company entered into anunsecured, committed credit agreement which provides for arevolving credit facility of up to $45.0 million. Interest on bor-rowings under the facility is based the nature and tenure of theborrowing and may be (a) in the case of U.S. dollar borrowings,the greater of the Prime Rate or the Federal Funds Effective Rateplus 0.5% or (b) in the case of Eurodollar borrowings, theAdjusted LIBOR rate (as defined in the agreement). Therestrictive covenants contained in the agreement limit theCompany with respect to, among other things, subsidiaryindebtedness, creating liens on its assets, mergers or con-solidations, disposition of assets other than in the ordinarycourse of business, acquisitions and investments. Additionally,the Company is required to maintain a minimum AdjustedEBITDA (as defined in the agreement) to interest expense ratioof 1.5 to 1, not exceed a maximum Debt to ConsolidatedEBITDA ratio of 2.5 to 1 and maintain a minimum stockholders’equity of $228 million plus 35% of consolidated net income foreach fiscal quarter.

The following table summarizes the major captions from theCompany’s consolidated statements of cash flows:

(in millions) 2006 2005 2004

Operating Activites $ 41.5 $ 2.1 $ 12.3

Investing Activities (13.4) (17.0) 17.9

Financing Activities (8.8) (3.6) (48.3)

Operating ActivitiesDuring 2006, the Company generated net cash from operatingactivities of $41.5 million principally due to earnings of $23.3million, non-cash expenses consisting of $10.5 million fordepreciation, $3.6 million for deferred income taxes and $2.3million for stock-based compensation, and improved manage-ment of accounts receivable in a period of rising revenues.

Investing ActivitiesCDI’s primary investing activities were for purchases of propertyand equipment. In 2006, capital expenditures totaled $13.5 mil-lion and included capital spending for computer hardware andsoftware to support the growth in engineering services in theP&I and Aerospace verticals, development of new recruitingsoftware to support BS, implementation of a new billing systemfor MRI, and implementation of a new billing and payroll system

for Todays. Capital spending in 2007 is expected to be approx-imately the same as in 2006.

Financing ActivitiesIn 2006, the Company paid shareholders dividends totaling $8.8million. The declaration and payment of future dividends will beat the discretion of the Company’s Board of Directors and willdepend upon many factors including the Company’s earnings,financial condition and capital requirements.

SummaryThe Company’s financial condition continues to remain strong.Management believes that the Company’s current funds, fundsgenerated from operations and funds available under its short-term debt facility will be sufficient to meet currently anticipatedworking capital and other capital requirements. Should the Com-pany require additional funds in the future, management believesthat it will be able to obtain these funds at competitive rates.

Contractual Obligations and CommitmentsThe following table summarizes the Company’s outstandingcontractual obligations and commitments as of December 31,2006 (in thousands):

Total

Lessthan 1

Year1 - 3

Years3 - 5

Years

Morethan 5Years

Operating lease commitments (1) $59,770 $11,859 $19,762 $12,746 $15,403

Letters of credit (2) 9,721 9,572 149 - -

Purchase obligations (3) 5,898 3,705 1,928 145 120

Total $75,389 $25,136 $21,839 $12,891 $15,523

(1) Represents future minimum rental commitments under

non-cancelable leases. The Company expects to fund these

commitments with existing cash and cash flows from operations.

(2) Represents letters of credit primarily issued through major

domestic banks as required by certain insurance carriers in

connection with its workers’ compensation plan.

(3) Purchase obligations consist primarily of normal and customary

technology maintenance contracts. The Company expects to fund

these commitments with existing cash and cash flows from

operations.

Critical Accounting Policies and EstimatesThe consolidated financial statements contained in this reportwere prepared in accordance with accounting principles gen-erally accepted in the United States of America, which requiremanagement to make estimates and assumptions that affectthe reported amounts of assets, liabilities, revenues, andexpenses, and the disclosure of contingencies. Certain account-ing policies, methods and estimates are particularly sensitivebecause of their significance to the consolidated financialstatements and because of the possibility that future eventsaffecting them may differ from current judgments. While thereare a number of accounting policies, methods and estimatesthat affect the consolidated financial statements as described in

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Note 1 to the Company’s consolidated financial statements,areas that are particularly significant are discussed below.

Allowance for Doubtful AccountsThe Company makes ongoing estimates relating to the collecti-bility of its accounts receivable and maintains an allowance forestimated losses resulting from the inability of its customers tomake required payments. Estimates used in determiningaccounts receivable allowances are based on specific customeraccount reviews, historical experience of credit losses and appli-cation of percentages to certain aged receivable categories. TheCompany also applies judgment including assessments aboutchanges in economic conditions, concentration of receivablesamong customers and industries, recent write-off trends, ratesof bankruptcy, and credit quality of specific customers.Unanticipated changes in the financial condition of customers,the resolution of various disputes, or significant changes in theeconomy could impact the reserves required. At December 31,2006 and 2005, the allowance for doubtful accounts was $3.5million and $3.6 million, respectively.

Income TaxesThe Company makes judgments and interpretations based onenacted tax laws, published tax guidance, as well as estimatesof future earnings. These judgments and interpretations affectthe provision for income taxes, deferred tax assets and liabilitiesand the valuation allowance. As of December 31, 2006, theCompany has total net deferred tax assets of $8.2 million. Thisincludes $5.0 million which relates primarily to state net operat-ing loss carryforwards, capital loss carryforwards, and othermiscellaneous credits. The deferred tax assets were evaluatedunder the guidelines of Statement of Financial AccountingStandards (“SFAS”) No. 109, Accounting for Income Taxes, anda determination on the basis of objective factors was made thatthe net assets will be realized through future years’ taxableincome. In the event that actual results differ from these esti-mates and assessments, additional valuation allowances may berequired.

Goodwill and Other Intangible AssetsGoodwill arising from acquisitions is not amortized but isinstead tested for impairment at the reporting unit level at leastannually in accordance with the provisions of SFAS No. 142,Goodwill and Other Intangible Assets. Generally, the Companyperforms its impairment assessment during its third fiscal quar-ter. Application of the goodwill impairment test requires sig-nificant judgments including estimation of future cash flows,which is dependent on internal forecasts, estimation of thelong-term rate of growth for the Company, the period overwhich cash flows will occur, and determination of the weightedaverage cost of capital. Changes in these estimates and

assumptions could materially affect the determination of fairvalue and/or goodwill impairment for each reporting unit.

Changes in future market conditions, the Company’s businessstrategy, or other factors could impact upon the future values ofthe Company’s reporting units, which could result in futureimpairment charges. At December 31, 2006, total goodwillamounted to $74.3 million.

Workers’ CompensationThe Company has a combination of insurance contracts andself-insurance under which the Company generally bears thefirst $250,000 of risk per single accident for workers’compensation claims. The Company establishes accruals forworkers’ compensation utilizing an outside actuarial service toestimate the undiscounted future cash payments that will bemade to satisfy the claims, including an allowance forincurred-but-not-reported claims. This process includesestablishing loss development factors based on the historicalclaims experience of the Company and the industry, and apply-ing those factors to current claims information to derive anestimate of the Company’s ultimate claims liability. In preparingthe estimates, the Company also considers the nature andseverity of the claims, analyses provided by third party claimsadministrators, as well as current legal, economic and regulatoryfactors. Changes in these estimates and assumptions couldmaterially affect the determination of the established accrual.Management evaluates the accrual, and the underlying assump-tions, periodically throughout the year and makes adjustmentsas needed based on such evaluation. The accrual for workers’compensation was $4.6 million and $4.7 million atDecember 31, 2006 and 2005, respectively.

ContingenciesThe Company is primarily in the business of employing peopleand providing technical and engineering services to businesseson a temporary or outsourced basis. As a result, CDI is party tolitigation in the ordinary course of its business. The outcome oflitigation brought against the Company is subject to significantuncertainty. SFAS No. 5, Accounting for Contingencies, requiresthat an estimated loss from a loss contingency, such as a legalproceeding or claim, should be accrued by a charge to income ifit is probable that an asset has been impaired or a liability hasbeen incurred, and the amount of the loss can be reasonablyestimated. Disclosure of a contingency is required if there is atleast a reasonable possibility that a loss has been incurred. Indetermining whether a loss should be accrued, the Companyevaluates, among other factors, the degree of probability of anunfavorable outcome and the ability to make a reasonableestimate of the amount of the loss. Changes in these factorscould materially impact the Company’s financial position orconsolidated results of operations.

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CHWFBU-MWS-CX019.6

Recent Accounting PronouncementsIn July 2006, the FASB issued FIN No. 48, Accounting forUncertainty in Income Taxes—an Interpretation of FASB State-ment 109. FIN No. 48 prescribes a model for the recognitionand measurement of a tax position taken or expected to betaken in a tax return, and provides guidance on derecognition,classification, interest and penalties, disclosure and transition.The Company is required to adopt this Interpretation in 2007.Adoption of FIN No. 48 is not expected to have a material effecton the Company’s consolidated financial statements.

In September 2006, the FASB issued SFAS No. 157, Fair ValueMeasurements. SFAS No. 157 defines fair value, establishes aframework for measuring fair value in generally acceptedaccounting principles and expands disclosures about fair valuemeasurements. SFAS No. 157 is effective for financial state-ments issued for fiscal years beginning after November 15,2007, and interim periods within those fiscal years. The Com-pany does not expect the adoption of SFAS No. 157 to have amaterial impact on its financial statements.

In September 2006, the SEC released Staff Accounting Bulletin(“SAB”) No. 108, Considering the Effects of Prior YearMisstatements when Quantifying Misstatements in Current YearFinancial Statements. SAB No. 108 provides guidance on howthe effects of prior year uncorrected financial statement mis-statements should be considered in quantifying a current yearmisstatement. SAB No. 108 requires registrants to quantifymisstatements using both an income statement (rollover) andbalance sheet (iron curtain) approach and evaluate whethereither approach results in a misstatement that, when all relevantquantitative and qualitative factors are considered, is material.SAB No. 108 was effective for the Company’s fiscal year endedDecember 31, 2006. Adoption of SAB No. 108 had no impacton the Company’s financial condition or results of operations.

Item 7A. Quantitative and QualitativeDisclosures About Market Risk

The Company is exposed to risks associated with foreign cur-rency fluctuations and changes in interest rates. The Company’sexposure to foreign currency fluctuations relates primarily to itsoperations denominated in British pounds sterling, Euros andCanadian dollars. Exchange rate fluctuations impact the U. S.dollar value of reported earnings derived from these foreignoperations as well as the Company’s investment in the netassets related to these operations. From time to time, theCompany engages in hedging activities with respect to its for-eign operations.

During the first quarter of 2006, the Company entered intoeight forward exchange contracts to hedge portions of its Brit-ish Pound and Canadian Dollar forecasted earnings. Throughoutthe year, a British Pound and Canadian Dollar forward contractmatured on the last day of each fiscal quarter. Under SFASNo. 133, Accounting for Derivative Instruments and HedgingActivities, these instruments are accounted for at fair value.Because the Company could not designate these transactions ashedges for accounting purposes, gains or losses are reflected inearnings immediately while the foreign-based income is recog-nized over the year. For the year ended December 31, 2006, theCompany recognized a loss on the forward exchange contractsamounting to $0.9 million. In 2005 and 2004, the Companypurchased foreign exchange put options to hedge a portion ofits European operations’ forecasted earnings. These contractsresulted in immaterial charges to the statements of earnings forthe years ended December 31, 2005 and 2004. AtDecember 31, 2006 there were no outstanding foreignexchange contracts.

The Company’s exposure to interest rate changes is not sig-nificant. During 2006, the Company’s maximum short-termborrowings were $16.0 million. In 2006, the weighted averageinterest rate on short-term borrowings was 7.85%. As ofDecember 31, 2006, the Company had no bank borrowingsoutstanding. The Company’s investments in money marketinstruments are primarily at variable rates.

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1*IFV 1C

CHWFBU-MWS-CX019.6

Item 8.Financial Statements andSupplementary Data

CDI CORP. AND SUBSIDIARIESConsolidated Statements of Earnings

Years ended December 31,

(in thousands, except share data) 2006 2005 2004

Revenues $1,265,286 $1,133,584 $1,045,207Cost of services 970,794 871,016 799,813

Gross profit 294,492 262,568 245,394Operating and administrative expenses 257,465 241,432 237,520Restructuring - (126) (200)Gain on sale of assets - (420) (1,295)

Operating profit 37,027 21,682 9,369Interest income and other (expense), net (572) 307 528

Earnings before income taxes and cumulative effect of accounting change 36,455 21,989 9,897Income tax expense 13,192 8,032 2,369

Earnings before cumulative effect of accounting change 23,263 13,957 7,528Cumulative effect of accounting change, net of tax - (152) -

Net earnings $ 23,263 $ 13,805 $ 7,528

Basic earnings per share:Earnings before cumulative effect of accounting change $ 1.17 $ 0.71 $ 0.38Cumulative effect of accounting change, net of tax - (0.01) -

Net earnings $ 1.17 $ 0.70 $ 0.38

Diluted earnings per share:Earnings before cumulative effect of accounting change $ 1.16 $ 0.70 $ 0.38Cumulative effect of accounting change, net of tax - (0.01) -

Net earnings $ 1.16 $ 0.69 $ 0.38

See accompanying notes to consolidated financial statements.

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1*IFV 1C

CHWFBU-MWS-CX019.6

CDI CORP. AND SUBSIDIARIESConsolidated Balance Sheets

December 31,

(in thousands, except share data) 2006 2005

AssetsCurrent assets:

Cash and cash equivalents $ 33,551 $ 13,407Accounts receivable, less allowance for doubtful accounts of $3,526 - December 31, 2006;

$3,588 - December 31, 2005 243,586 232,365Prepaid expenses and other assets 7,713 6,910Income taxes receivable - 2,135Deferred income taxes 5,834 4,938

Total current assets 290,684 259,755Property and equipment, net 39,851 36,972Deferred income taxes 2,412 6,928Goodwill 74,283 71,199Other assets 5,889 4,640

Total assets $ 413,119 $ 379,494

Liabilities and Shareholders’ EquityCurrent liabilities:

Cash overdraft $ 2,508 $ 5,511Accounts payable 35,145 31,356Withheld payroll taxes 2,467 1,720Accrued compensation and related expenses 44,081 41,801Other accrued expenses and other liabilities 18,286 14,555Income taxes payable 2,259 2,823

Total current liabilities 104,746 97,766Deferred compensation and other non-current liabilities 9,041 10,250

Total liabilities 113,787 108,016

Commitments and Contingencies (Notes 13 and 15)

Shareholders’ equity:Preferred stock, $.10 par value - authorized 1,000,000 shares; none issued - -Common stock, $.10 par value - authorized 100,000,000 shares; issued 20,975,230 shares -

December 31, 2006; 20,789,972 shares - December 31, 2005 2,098 2,079Class B common stock, $.10 par value - authorized 3,174,891 shares; none issued -Additional paid-in-capital 41,443 35,459Retained earnings 265,015 250,534Accumulated other comprehensive income 13,160 5,822Unamortized value of restricted stock issued - (32)Less common stock in treasury, at cost - 966,934 shares (22,384) (22,384)

Total shareholders’ equity 299,332 271,478

Total liabilities and shareholders’ equity $ 413,119 $ 379,494


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RR Donnelley ProFile LAN shinr0inSTART PAGE

2*PMT 1C


CDI CORP. AND SUBSIDIARIESConsolidated Statements of Shareholders’ Equity


(in thousands) 2006 2005 2004

Common stockBeginning of year $ 2,079 $ 2,067 $ 2,054Exercise of stock options 13 8 11Stock purchase plan 5 4 2Time-vested deferred stock 1 - -

End of year $ 2,098 $ 2,079 $ 2,067

Additional paid-in-capitalBeginning of year $ 35,459 $ 31,687 $ 28,205Reclassification from unamortized value of restricted stock (32) - -Exercise of stock options 2,589 1,663 2,631Stock-based compensation 3,070 1,422 371Tax benefit from stock plans 357 687 480

End of year $ 41,443 $ 35,459 $ 31,687

Retained earningsBeginning of year $250,534 $245,425 $285,164Net earnings 23,263 13,805 7,528Dividends paid to shareholders (8,782) (8,696) (47,267)

End of year $265,015 $250,534 $245,425

Accumulated other comprehensive incomeBeginning of year $ 5,822 $ 10,559 $ 6,829Translation adjustment 7,338 (4,737) 3,730

End of year $ 13,160 $ 5,822 $ 10,559

Unamortized value of restricted stock issuedBeginning of year $ (32) $ (228) $ (544)Restricted stock-forfeiture - 64 23Restricted stock-change in value - - 9Restricted stock-amortization - 132 284Reclassification to additional paid in capital 32 - -

End of year $ - $ (32) $ (228)

Treasury stockBeginning of year $ (22,384) $ (22,320) $ (22,297)Restricted stock-forfeiture - (64) (23)

End of year $ (22,384) $ (22,384) $ (22,320)

Comprehensive incomeNet earnings $ 23,263 $ 13,805 $ 7,528Translation adjustment 7,338 (4,737) 3,730

Total $ 30,601 $ 9,068 $ 11,258


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2*PMT 1C


CDI CORP. AND SUBSIDIARIESConsolidated Statements of Cash Flows


(in thousands) 2006 2005 2004

Operating activities:Net earnings $ 23,263 $ 13,805 $ 7,528Cumulative effect of accounting change - 152 -

Earnings before cumulative effect of accounting change 23,263 13,957 7,528Adjustments to reconcile net earnings to cash provided by operating activities:

Depreciation 10,528 10,300 9,618Deferred income taxes 3,618 2,807 559Stock-based compensation 2,268 918 912Impairment of asset held for sale 705 125 -Tax benefit from equity compensation plans - 687 480Loss (gain) on sale of assets 315 (420) (1,295)Non-cash provision for restructure expenses - (126) (200)

Changes in operating assets and liabilities:Accounts receivable, net (6,208) (42,753) 6,541Prepaid expenses (1,449) 2,895 (154)Accounts payable 3,222 8,013 (434)Accrued expenses and other current liabilities 5,342 999 (8,780)Income taxes 1,477 5,290 (3,816)Other assets, non-current liabilities and other (1,536) (574) 1,335

Net cash provided by operating activities 41,545 2,118 12,294

Investing activities:Additions to property and equipment (13,510) (15,698) (7,798)Purchase of residential property held for sale - (2,000) -Sale and maturities of short-term investments, net - - 22,606Proceeds from sale of assets 184 644 2,162Other (110) 86 917

Net cash (used in) provided by investing activities (13,436) (16,968) 17,887

Financing activities:Dividends paid to shareholders (8,782) (8,696) (47,267)Cash overdraft (3,003) 3,376 (3,713)Proceeds from exercises of employee stock options 2,602 1,673 2,642Tax benefit from equity compensation plans 357 - -

Net cash used in financing activities (8,826) (3,647) (48,338)

Effect of exchange rate changes on cash 861 (812) 583

Net increase (decrease) in cash and cash equivalents 20,144 (19,309) (17,574)Cash and cash equivalents at beginning of year 13,407 32,716 50,290

Cash and cash equivalents at end of year $ 33,551 $ 13,407 $ 32,716

Supplemental disclosure of cash flow information:Cash paid for interest $ 81 115 $ -Cash paid (received) for income taxes, net 8,085 (1,348) 6,800

Supplemental disclosure of non-cash investing activities:Increase in leasehold improvement assets and lease incentive liability related to tenant

improvement allowances $ 17 $ 2,911 $ -Increase in leasehold improvement assets and related contingent retirement obligation

liability 141 419 -


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5*PMT 1C


Notes to Consolidated Financial Statements(In thousands, except share and per share amounts, unless otherwise indicated)

Note 1 - Significant Accounting PoliciesNature of Operations - CDI Corp. (the “Company” or “CDI”)is a provider of engineering and information technology out-sourcing solutions and professional staffing. The Company is aPennsylvania corporation with operations primarily in the UnitedStates, Europe and Canada.

Basis of Presentation - The consolidated financial statementsof the Company and the accompanying notes are prepared inaccordance with accounting principles generally accepted in theUnited States of America and the rules of the Securities andExchange Commission.

Principles of Consolidation - The consolidated financialstatements include the accounts of the Company and its wholly-owned subsidiaries after elimination of intercompany balancesand transactions. For comparative purposes, certain amountshave been reclassified to conform to the 2006 presentation.

Use of Estimates - The preparation of financial statements inaccordance with accounting principles generally accepted in theUnited States of America requires management to make esti-mates and assumptions that affect the reported amounts ofassets and liabilities and disclosure of contingent assets andliabilities at the date of the financial statements and thereported amounts of revenues and expenses during the report-ing period. Actual results could differ from those estimates.

Revenue Recognition - Revenues in the consolidated state-ments of earnings are presented net of any revenue-based taxes,such as sales, use, excise and value added taxes. The Companyderives its revenues from several sources. All of the Company’ssegments perform staffing services. The Company’s BusinessSolutions segment also performs project and outsourcing serv-ices, which includes some fixed-price contracts. ManagementRecruiters International derives a large portion of its revenuefrom ongoing franchise royalties and initial franchise fees.

Staffing Services - The Company recognizes revenues fromstaffing services on a gross basis, as services are performedand associated costs have been incurred using employeesof the Company. In these circumstances, the Companyassumes the risk of acceptability of its employees to itscustomers. An element of the Company’s staffing businessis the use of unaffiliated companies (“supplier associates”)and their employees to fulfill a customer’s staffingrequirements. Under these arrangements, these firms serveas subcontractors. Customers typically require a singleconsolidated billing which reflects services performed bythe Company’s employees as well as staffing supplied bysupplier associates.

When supplier associates are utilized, the Company recordsthe difference between its gross billings and the amountpaid to the supplier associate as revenue, which is generallyreferred to as an administrative fee. Administrative andclerical costs related to time accumulation, invoicing, and

other activities are recorded and included in operating andadministrative expenses as incurred.

Project and Outsourcing Services - The Company recognizesrevenue from project outsourcing services based onmark-ups of its employees’ rates of pay. To a lesser extent,the Company derives revenue from fixed-price contracts.

Fixed-price contracts typically include development of con-ceptual and detailed designs in support of a customer’sconstruction of tangible property. In accordance with theAmerican Institute of Certified Public Accountants’ State-ment of Position (“SOP”) 81-1, Accounting for Perform-ance of Construction-Type and Certain Production-TypeContracts, revenue is recorded using thepercentage-of-completion method relying on direct hoursas the primary input measure. In addition, these contractsare evaluated periodically to ensure that any potentiallosses have been identified and recorded in the financialstatements.

Outsourcing service contracts generally include the perform-ance of certain computer or network operations or help-desk support on behalf of customers. Service contractstypically contain an invoicing schedule covering the con-tractual period. Accordingly, the Company recognizes rev-enue on a pro-rata basis using elapsed time as the measureof performance under these contracts. The Companycharges the related costs to earnings as they are incurred.As with fixed-price engineering contracts, the Companyperiodically evaluates the need to provide for any losses onsuch contracts.

Permanent Placement - Services include the search andrecruitment of candidates to become employed by theCompany’s customers. Generally, the Company performspermanent placement services on a non-exclusive, con-tingency basis and recognizes revenue only after success-fully placing a recommended candidate.

Ongoing Franchise Royalties - MRI’s right to franchise royal-ties is governed by the provisions of the franchise contracts.Under the franchise contracts, the franchisees remit to theCompany a contractual percentage of fees collected fromtheir customers. The Company records franchise royaltyrevenue as fees are collected by the franchisee and theybecome a receivable from the franchisee, in accordancewith Statement of Financial Accounting Standards (“SFAS”)No. 45—Accounting for Franchise Fee Revenue.

Initial Franchise Fees - The Company recognizes fees relatedto sales of new MRI franchises and master franchiseagreements when the Company has substantially fulfilledits requirements under the franchise agreement.

Off-Balance Sheet Risk - The Company maintains letters ofcredit primarily issued through major domestic banks asrequired by certain insurance carriers in connection with itsworkers’ compensation plan. As of December 31, 2006 and2005, the Company had outstanding letters of credit of

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$9.7 million and $9.2 million, respectively, expiring at variousdates through December 2008.

From time to time the Company engages in hedging activitieswith respect to its foreign operations. As of December 31,2006, the Company had no outstanding hedging instruments inplace.

Foreign Currency Translation - Foreign subsidiaries of theCompany use local currency as the functional currency. Netassets are translated at year-end rates while revenues andexpenses are translated at average exchange rates. Adjustmentsresulting from these translations are reflected in accumulatedother comprehensive income in shareholders’ equity. Gains andlosses arising from foreign currency transactions are reflected inthe consolidated statements of earnings.

Concentrations of Credit Risk - The Company’s principal assetis accounts receivable. Substantially all of the Company’s cus-tomers are provided trade credit. The primary users of theCompany’s services are large organizations, many of which areFortune 1000 companies. The Company performs ongoingcredit evaluations of its customers and maintains allowances forpotential credit losses. An allowance is provided againstaccounts receivable that are not expected to be collected. Thisreserve is based upon historical experience, as well as estimatesbased on management’s judgments in specific matters.

During 2006, 2005 and 2004, no single customer accounted for10% or more of consolidated revenues. The Company’s top tenrevenue-producing customers accounted for approximately27%, 27%, and 26% of consolidated revenue for the yearsended December 31, 2006, 2005, and 2004, respectively.

One customer accounted for approximately 15% of totalaccounts receivable at December 31, 2006. At December 31,2005 and 2004, no individual customer accounted for 10% ofmore of total accounts receivable.

The Company’s cash balances are maintained in accounts heldby major banks and financial institutions, primarily in the UnitedStates.

Income Taxes - The Company accounts for income taxes usingthe asset and liability method. Under this method, income taxesare provided for amounts currently payable and for amountsdeferred as tax assets and liabilities based on differencesbetween the financial statement carrying amounts and tax basisof its assets and liabilities. In establishing its deferred income taxassets and liabilities the Company makes judgments and inter-pretations based on the enacted tax laws and published taxguidance that are applicable to its operations. The Companyrecords deferred tax assets and liabilities, and evaluates theneed for valuation allowances to reduce the deferred tax assetsto realizable amounts. The likelihood of a material change in theCompany’s expected realization of these assets is dependent onfuture taxable income, its ability to use tax credit carryforwardsand carrybacks, final tax settlements, and the effectiveness of itstax planning strategies in the various tax jurisdictions in which itoperates.

Cash and Cash Equivalents - Cash equivalents includeinvestments in highly liquid securities that mature within 90days from their date of acquisition. All the Company’s cashequivalents represent investments in money market instruments.

Fair Value of Financial Instruments - The net carryingamounts of cash and cash equivalents, accounts receivable, cashoverdraft and accounts payable approximate their fair value dueto the short-term nature of these instruments.

Property and Equipment - Property and equipment arerecorded at cost. Depreciation expense is computed using thestraight-line method over the following useful lives:

Computer equipment 4-7 years

Equipment and furniture 5-10 years

Software 4-7 years

Leasehold improvements Shorter of lease term or useful life

The Company capitalizes direct costs incurred in the develop-ment of internal-use software in accordance with SOP 98-1,Accounting for the Costs of Computer Software Developed orObtained for Internal Use.

Goodwill - Goodwill represents the excess of the cost of busi-nesses acquired over the fair market value of identifiable netassets at the dates of acquisition. The Company follows theprovisions of SFAS No. 142, Goodwill and Other IntangibleAssets. SFAS No. 142 requires an annual impairment test forgoodwill and intangible assets with indefinite lives. Under theprovisions of SFAS No. 142, the first step of the impairment testrequires that the Company determine the fair value of eachreporting unit, and compare the fair value to the reportingunit’s carrying amount. To the extent a reporting unit’s carryingamount exceeds its fair value, an indication exists that thereporting unit’s goodwill may be impaired and the Companymust perform a second more detailed impairment assessment.The second impairment assessment involves allocating thereporting unit’s fair value to all of its recognized and unrecog-nized assets and liabilities in order to determine the implied fairvalue of the reporting unit’s goodwill as of the assessment date.The implied fair value of the reporting unit’s goodwill is thencompared to the carrying amount of goodwill to quantify animpairment charge as of the assessment date. The Companyperforms its annual impairment test during the third fiscal quar-ter and will continue to do so unless events or circumstancesindicate an impairment may have occurred before that time.

Long-Lived Assets - The Company evaluates long-lived assetsand intangible assets with definite lives for impairment when-ever events or changes in circumstances indicate that the carry-ing amount of an asset may not be recoverable. When it isprobable that undiscounted future cash flows will not be suffi-cient to recover an asset’s carrying amount, the asset is writtendown to its fair value. Assets to be disposed of by sale arereported at the lower of the carrying amount or fair value lesscost to sell.

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Leases - The Company leases office space under operatingleases expiring at various times through 2016. For material leaseagreements that provide for escalating rent payments or free-rent occupancy periods, the Company recognizes rent expenseon a straight-line basis over the non-cancelable lease term. Thelease term commences on the date when all conditions prece-dent to the Company’s obligation to pay rent are satisfied.Deferred rent is included in “Other accrued expenses and otherliabilities” in the consolidated balance sheets.

Cash Overdraft - The Company manages the level of cash inbanks to minimize its non-interest bearing cash balances. Cashbalances as reflected by banks are higher than the Company’sbook balances because of checks that are outstanding through-out the banking system. Cash is generally not provided to bankaccounts until checks are presented for payment. This processresults in negative cash balances in the Company’s records.These negative balances are reflected in current liabilities as“Cash overdraft” when the right of offset is not available.

Conditional Asset Retirement Obligations - In March 2005,the Financial Accounting Standards Board (“FASB”) issued FASBInterpretation (“FIN”) No. 47, Accounting for Conditional AssetRetirement Obligations, which clarifies the term conditionalasset retirement obligation as used in SFAS No. 143, Accountingfor Asset Retirement Obligations, as a legal obligation to per-form an asset retirement activity in which the timing and/ormethod of settlement are conditional on a future event thatmay or may not be within the control of the Company. Theobligation to perform the asset retirement activity is uncondi-tional even though uncertainty exists about the timing and/ormethod of settlement. FIN No. 47 requires recognition of thefair value of a liability for an asset retirement obligation in theperiod in which it is incurred, assuming that the settlement dateis estimable. The cost is capitalized as part of the carryingamount of the related tangible long-lived asset and is depreci-ated over the remaining useful life of that asset. The Companyadopted FIN No. 47 on December 31, 2005. For the Company,this interpretation only applied to real estate restoration activ-ities at certain Anders segment properties which are rentedunder operating lease agreements. The impact of adopting thisinterpretation was an increase to the Company’s leaseholdimprovement assets amounting to $0.3 million and recognitionof an asset retirement obligation of $0.5 million which resultedin a charge of $0.2 million, which is included in “Cumulativeeffect of accounting change” in the accompanying consolidatedstatement of earnings for the year ended December 31, 2005.Adoption of this standard would not have had a material impacton the Company’s results of operations or financial conditionfor 2004 or any earlier period.

Stock-Based Compensation - On January 1, 2006, the Com-pany adopted SFAS No. 123(R), Share-Based Payment, whichrequires all share-based payments to employees to be recog-nized as an expense based on the estimated fair value of theaward on the date of grant. The compensation expense, less

expected forfeitures, is being recognized over the service periodon a straight-line basis. The Company uses the Black-Scholesoption pricing model to calculate the fair value of the awards.The Black-Scholes model requires estimates for stock price vola-tility, expected term and risk-free interest rate. Changes in theseestimates could impact expense recognition for future awards.

Prior to the adoption of SFAS No. 123(R), the Companyaccounted for its stock based plans in accordance with Account-ing Principles Board (“APB”) Opinion No. 25, Accounting forStock Issued to Employees and disclosed the pro forma effecton net income as required by SFAS No. 148, Accounting forStock-Based Compensation—Transition and Disclosure, anamendment of FASB Statement No. 123.

Workers’ Compensation - The Company has a combination ofinsurance contracts and self-insurance under which the Com-pany generally bears the first $250,000 of risk per single acci-dent for workers’ compensation claims. The Companyestablishes accruals for workers’ compensation utilizing an out-side actuarial service to estimate the undiscounted future cashpayments that will be made to satisfy the claims, including anallowance for incurred-but-not-reported claims. This processincludes establishing loss development factors based on thehistorical claims experience of the Company and the industry,and applying those factors to current claims information toderive an estimate of the Company’s ultimate claims liability. Inpreparing the estimates, the Company also considers the natureand severity of the claims, analyses provided by third partyclaims administrators, as well as current legal, economic andregulatory factors. Changes in these estimates and assumptionscould materially affect the determination of the establishedaccrual. Management evaluates the accrual, and the underlyingassumptions, periodically throughout the year and makesadjustments as needed based on such evaluation. The accrualfor workers’ compensation was $4.6 million and $4.7 million atDecember 31, 2006 and 2005, respectively.

New Accounting PronouncementsIn July 2006, the FASB issued FIN No. 48, Accounting forUncertainty in Income Taxes—an Interpretation of FASB State-ment 109. FIN No. 48 prescribes a model for the recognitionand measurement of a tax position taken or expected to betaken in a tax return, and provides guidance on derecognition,classification, interest and penalties, disclosure and transition.The Company is required to adopt this Interpretation in 2007.Adoption of FIN No. 48 is not expected to have a material effecton the Company’s consolidated financial statements.

In September 2006, the FASB issued SFAS No. 157, Fair ValueMeasurements. SFAS No. 157 defines fair value, establishes aframework for measuring fair value in generally acceptedaccounting principles, and expands disclosures about fair valuemeasurements. This Statement applies to accountingpronouncements that require or permit fair value measurements.

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The adoption of SFAS No. 157 will be effective for financialstatements issued for fiscal years beginning after November 15,2007, and interim periods within those fiscal years. The Com-pany does not expect that the adoption of SFAS No. 157 will ahave a material impact on the financial statements of the Com-pany.

In September 2006, the SEC released Staff Accounting Bulletin(“SAB”) No. 108, Considering the Effects of Prior YearMisstatements when Quantifying Misstatements in Current YearFinancial Statements. SAB No. 108 provides guidance on howthe effects of prior year uncorrected financial statement mis-statements should be considered in quantifying a current yearmisstatement. SAB No. 108 requires registrants to quantifymisstatements using both an income statement (rollover) andbalance sheet (iron curtain) approach and evaluate whethereither approach results in a misstatement that, when all relevantquantitative and qualitative factors are considered, is material.SAB No. 108 was effective for the Company’s fiscal year endingDecember 31, 2006. Adoption of SAB No. 108 had no impacton the Company’s financial condition or results of operations.

Note 2 - 2005 Fourth Quarter AdjustmentsDuring the fourth quarter of 2005, management identified andcorrected certain errors that occurred in earlier 2005 quartersand prior years of $0.3 million and $1.2 million, respectively.Management evaluated the quantitative and qualitative impactof the corrections, individually and in the aggregate, on pre-viously reported periods, on the 2005 fiscal year and on earn-ings trends. Based upon this evaluation, managementconcluded that the errors were not material to the Company’sconsolidated financial statements taken as a whole. Theadjustments, amounting to $1.5 million ($1.1 million, net of tax,or $0.05 per basic and diluted share), reduced both revenuesand gross profit by $1.4 million and increased expenses by $0.1million in the fourth quarter of 2005. The aforementionederrors resulted in the overstatement of pre-tax income to thefollowing segments in the periods indicated (in millions):

BusinessSolutions AndersElite Total

Nine months ended September 30, 2005 $0.1 $0.2 $0.3

Year ended December 31, 2004 0.1 0.1 0.2

Year ended December 31, 2003 1.0 - 1.0

Total $1.2 $0.3 $1.5

Note 3 - Property Held for SaleOn August 26, 2005, the Company entered into a relocationagreement with an MRI executive. During the third quarter of2006, the association between the executive and the Companyceased. Under the terms of the relocation agreement, the for-mer executive transferred beneficial ownership of his principalresidence to the Company in exchange for $2.0 million. At thetime of the transfer, the property had a fair value, net of coststo sell, of $3.2 million with an outstanding mortgage of $1.4million. In accordance with SFAS No. 144, Accounting for the

Impairment or Disposal of Long-Lived Assets, the asset held forsale is stated at fair value less costs to sell. The Company hasengaged a third party to sell the property and is actively market-ing the property. Due to a decline in the fair value of the prop-erty the Company recorded impairment charges, included inoperating and administrative expenses in the accompanyingconsolidated statements of earnings, of $0.7 million and $0.1million for the years ended December 31, 2006 andDecember 31, 2005, respectively.

The asset of $2.4 million at December 31, 2006 and $3.1millionat December 31, 2005 is presented in the consolidated balancesheet in “Prepaid expenses and other assets” and the mortgagepayable of $1.4 million at December 31, 2006 and 2005 ispresented in “Other accrued expenses and other liabilities”. Thevalue of the asset is included in MRI for segment reportingpurposes (see Note 20).

Note 4 - Property and EquipmentProperty and equipment, net at December 31, 2006 and 2005was comprised of the following:

2006 2005

Computer equipment $ 61,093 $ 72,922

Equipment and furniture 24,422 29,305

Software 33,480 27,312

Leasehold improvements 16,297 15,318

135,292 144,857

Accumulated depreciation (95,441) (107,885)

$ 39,851 $ 36,972

During the years ended December 31, 2006 and 2005, theCompany capitalized approximately $3.1 million and $5.4 mil-lion, respectively, of internal-use software acquisition anddevelopment costs. In the fourth quarter of 2006, the Companyretired $23.4 million of property and equipment, recognizing aloss of $0.3 million.

Note 5 - GoodwillIn accordance with SFAS No. 142, Goodwill and OtherIntangible Assets, the Company performs its annual goodwillimpairment testing, by reportable segment, in the third quarter,or more frequently if events or changes in circumstancesindicate that goodwill may be impaired. The Company con-ducted its annual goodwill impairment test as of July 1, 2006and identified no impairments. Application of the goodwillimpairment test requires significant judgments including estima-tion of future cash flows, which is dependent on internal fore-casts, estimation of the long-term rate of growth for thebusinesses, the useful life over which cash flows will occur, anddetermination of the Company’s weighted average cost of capi-tal. Changes in these estimates and assumptions could materi-ally affect the determination of fair value and/or conclusions ongoodwill impairment for each reporting unit.

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The following table summarizes the changes in the Company’s carrying value of goodwill by reportable segment during 2006 and2005:

Balance atDecember 31,

2004Translation

Adjsutments


2005Translation

Adjsutments


2006

Business Solutions $16,662 $ - $16,662 $ - $16,662AndersElite 23,438 (2,271) 21,167 2,739 23,906Todays 23,524 - 23,524 - 23,524MRI 10,131 (285) 9,846 345 10,191

$73,755 $(2,556) $71,199 $3,084 $74,283

Note 6 - Short-Term BorrowingsThe Company had an uncommitted, unsecured line of credit,which provided for borrowings of up to $35.0 million for short-term working capital needs. The line expired on February 28,2007. See Note 21 for information on the Company’s newcredit facility

Interest on outstanding borrowings was determined, at theoption of the Company, either by the Prime Rate or theAdjusted LIBOR Rate (as defined in the promissory note agree-ment) plus 0.60%. There were no commitment or facility feesassociated with this line of credit. During 2006, the Company’soutstanding borrowings ranged from $0.1 million to $16.0 mil-lion and the weighted average interest rate on short-term bor-rowings was 7.85%. During 2005, the Company’s outstandingborrowings ranged from $0.1 million to $13.6 million and theweighted average interest rate on short-term borrowings was6.82%. Interest expense for each of the years endedDecember 31, 2006 and 2005 was $0.1 million. AtDecember 31, 2006 and 2005, there were no outstanding bor-rowings under this facility.

Note 7 - Real Estate Exit CostsDuring 2004, the Company experienced continued declines indemand in its Life Sciences vertical within the Business Solutionssegment causing excess real estate capacity. Management alsodetermined that there was excess real estate capacity in the MRIsegment. The Company ceased using these properties and, inaccordance with SFAS No. 146, Accounting for Costs of Exit orDisposal Activities, the Company recorded pre-tax charges of$2.9 million, of which $0.6 million related to abandoned lease-hold improvements and $2.3 million related to operating leaseterminations.

In 2005, management recorded an additional expense of $0.6million for operating lease terminations, of which $0.2 millionwas charged to the Business Solutions segment and $0.4 millionwas charged to the MRI segment. These additional chargeswere caused by a longer than expected timeframe to subleasethe previously vacated properties.

In December 2006, a joint venture, in which the Company’sBusiness Solutions segment is a member, entered into a masterservices agreement with a customer. To support this businessexpansion, the Business Solutions segment entered into a

sublease arrangement to occupy the space vacated by MRI in2004. On a consolidated basis, the MRI portion of the liabilityno longer qualifies for accrual under SFAS No. 146 and theCompany has reversed the remaining liability balance of $0.8million.

These amounts are included in operating and administrativeexpenses in the accompanying consolidated statements of earn-ings.

The table presented below shows the activity by reportablesegments:

BusinessSolutions MRI Totals

Balance as of December 31, 2003 $ - $ - $ -

Charges for real estate exit costs 834 2,064 2,898

Payments/reduction of assets (596) (682) (1,278)

Balance as of December 31, 2004 238 1,382 1,620

Additional charges for real estate exit

costs 187 391 578

Payments (362) (483) (845)

Balance as of December 31, 2005 63 1,290 1,353

Additional charges for (reversal of) real

estate exit costs 139 (819) (680)

Payments (114) (471) (585)

Balance as of December 31, 2006 $ 88 $ - $ 88

The future payments related to the above lease obligations areexpected to extend through mid 2010. The accrual for realestate exit costs is included in other accrued expenses in theaccompanying consolidated balance sheets.

Note 8 - Stock-Based CompensationPrior to January 1, 2006, the Company accounted for its stock-based plans in accordance with APB Opinion No. 25, Account-ing for Stock Issued to Employees. Under APB Opinion No. 25,the Company did not recognize compensation expense forstock options since the options were granted at an exerciseprice equal to or in excess of the market price at the date ofgrant and the number of shares granted was fixed at that pointin time. For stock appreciation rights, the Companyre-measured at each reporting date the difference between the

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current quoted market price of the stock and the grant price. Ifthe market price exceeded the grant price the Company recog-nized compensation expense based on the percentage of servicecompleted less compensation cost previously recognized. Inaccordance with SFAS No. 148, Accounting for Stock-BasedCompensation—Transition and Disclosure, an amendment ofFASB Statement No. 123, the Company disclosed in the notesto the consolidated financial statements the effects on netincome of applying the fair value method of accounting forstock-based compensation plans under SFAS No. 123, Account-ing for Stock-Based Compensation.

On January 1, 2006, the Company adopted SFAS No. 123(R),Share-Based Payment, which requires all share-based paymentsto employees to be recognized as an expense based on theestimated fair value of the award on the date of grant. TheCompany has elected the modified prospective transitionmethod which does not require restatement of prior periods.The Company used the Black-Scholes option pricing model toestimate the fair value of all share-based awards. Compensationcost includes the estimated fair value of all share-based awardswhich were not fully vested as of January 1, 2006 and the esti-mated fair value of all share-based awards granted subsequentto January 1, 2006. Compensation expense, less expected for-feitures, is being recognized over the service period on astraight-line basis. Under SFAS No. 123(R), the estimated for-feiture method is required such that expected future forfeituresof non-vested awards are reflected as a reduction of stock-based compensation expense. Estimated forfeitures may needto be revised in subsequent periods if actual forfeitures differfrom estimates. However, SFAS No. 123(R) does not allow asubsequent reduction of compensation expense if a vestedshare-based payment is later forfeited, as would occur when anout-of-the money stock option is surrendered by a resigningemployee. Forfeitures were estimated at the time of grant andwere based upon historical experience.

The Company has two stock-based compensation plans, the CDICorp. 2004 Omnibus Stock Plan (“Omnibus Plan”) and the StockPurchase Plan for Management Employees and Non-EmployeeDirectors (“Stock Purchase Plan”). The Omnibus Plan replacedthe 1998 Non-Qualified Stock Option Plan and the earlierNon-Qualified Stock Option and Stock Appreciation Rights Plan.The Omnibus Plan allows eligible employees to receive awards ofstock options, stock appreciation rights, deferred stock, restrictedstock, and performance-based restricted stock units. Under theStock Purchase Plan, certain employees and non-employee direc-tors may purchase shares of the Company’s common stock witha portion of bonuses for employees or retainer fees fornon-employee directors. As of December 31, 2006, the Com-pany has reserved 2,743,120 shares of common stock for issu-ance of stock based awards under the Company’s Omnibus Planand 155,073 shares of common stock for issuance under theCompany’s Stock Purchase Plan.

On August 11, 2005, the Company and Roger H. Ballou (theCompany’s President and Chief Executive Officer) agreed on theterms of a new employment agreement. Mr. Ballou’s previousemployment agreement expired on September 30, 2005. Thenew agreement extended the term of Mr. Ballou’s employmentto September 30, 2008. In addition to base salary and cashbonuses, Mr. Ballou could receive up to 80,000 stock optionsand up to 35,000 shares of restricted stock over the term of hisemployment agreement if various performance criteria are sat-isfied and if he remains employed by the Company.

Stock-based compensation expense is included in operating andadministrative expenses in the consolidated statement of earn-ings and amounted to $2,268 ($1,447, net of tax), $918 ($583,net of tax) and $912 ($693, net of tax) for the years endedDecember 31, 2006, 2005 and 2004, respectively. The tablebelow summarizes the components of stock-based compensa-tion expense for all of the Company’s stock-based plans for theyear ended December 31, 2006, 2005, and 2004:

2006 2005 2004

Stock options $1,251 $ - $ -

Stock appreciation rights 288 311 -

Time-vested deferred stock 319 158 -

Restricted stock 166 133 285

Stock purchase plan 244 316 627

$2,268 $918 $912

Stock OptionsThe table below summarizes the fair value of optionsgranted during the year ended December 31, 2006and the assumptions utilized to estimate the fair value.The Company did not grant stock options during theyear ended December 31, 2005.

2006

Risk-free interest rate 4.625%

Expected life of option 5.0 years

Expected stock price volatility 37%

Expected dividend yield 1.53%

Weighted-average fair value at grant date $ 9.87

Options are generally granted at a price equal to or greater thanthe quoted market price per share of the Company’s commonstock on the date of grant. Employee stock options generallyvest ratably over a five year period and expire seven years fromthe date of grant. In estimating the expected term of theoptions, the Company has utilized the “simplified method”allowable under SEC Staff Accounting Bulletin No. 107, Share-Based Payment. The expected stock price volatility is based onthe historical volatility of the Company’s common stock over theprevious five years.

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The following table summarizes the Company’s stock option activity and related information for each of the three years in theperiod ended December 31, 2006.

Options

WeightedAverageExercise

Price

WeightedAverage

RemainingContractual

Life

AggregateIntrinsic

Value

Outstanding at December 31, 2003 1,431,508 $20.64

Granted 282,447 28.40

Exercised (110,026) 21.35

Cancelled (182,268) 25.71

Outstanding at December 31, 2004 1,421,661 21.44

Granted - -

Exercised (82,070) 20.22

Cancelled (426,157) 18.87

Outstanding at December 31, 2005 913,434 22.75

Granted 17,000 28.78

Exercised (122,460) 21.26

Cancelled (45,030) 27.10

Outstanding at December 31, 2006 762,944 $22.87 3.0 $3,076

Exercisable at December 31, 2006 521,459 $21.98 2.8 $2,433

Aggregate intrinsic value represents the difference between the exercise prices and the closing stock price on December 31, 2006.The total intrinsic value of stock options exercised during the year ended December 31, 2006 was $0.9 million based on the differ-ence between the exercise price and the closing stock price on the date of exercise.

For various price ranges, weighted average characteristics of outstanding employee stock options at December 31, 2006 are as fol-lows:

Options Outstanding Options Exercisable

Range of Exercise Prices

NumberOutstanding as of

December 31, 2006

Weighted AverageRemaining

Contractual LifeWeighted Average

Exercise Price

NumberExercisable as of

December 31, 2006Weighted Average

Exercise Price

$14.23 - $16.05 245,900 2.3 $15.71 195,900 $15.63$16.90 - $21.75 136,625 2.9 $21.18 121,496 $21.14$22.56 - $25.50 136,850 2.9 $23.16 88,770 $23.10$25.77 - $46.50 243,569 3.8 $30.88 115,293 $32.78

762,944 521,459

The following table summarizes the Company’s nonvested stockoption activity and related information for the year endedDecember 31, 2006:

Options


Price

Nonvested at December 31, 2005 424,156 $23.97

Granted 17,000 28.78

Vested (177,220) 23.15

Forfeited/cancelled (22,451) 26.11


As of December 31, 2006, total unrecognized compensationcost related to nonvested stock options was $1.4 million and

will be recognized over the remaining weighted-average serviceperiod of 1.4 years.

Stock Appreciation RightsThe following table summarizes the fair value of SARs grantedfor the years ended December 31, 2006 and 2005, respectively,and the assumptions utilized to estimate the fair value:

2006 2005

Risk-free interest rate 4.56 - 5.08% 3.85%

Expected life of SARs 5.0 years 5.5 years

Expected stock price volatility 37% 35%

Expected dividend yield 1.53 - 2.15% 2.37%

Weighted-average fair value at grant date $6.73 - 9.71 $ 6.50

SARs generally vest ratably over a five year period and expireseven years from the date of grant. Upon exercise, the amount

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of appreciation in stock price, minus withholding taxes, is pay-able in shares of common stock. In estimating the expectedterm of the SARs, the Company has utilized the “simplified

method” allowable under SAB No. 107. The expected stockprice volatility is based on the historical volatility of the Compa-ny’s common stock over the previous five years.

The following table summarizes the Company’s SARs activity and related information for the year ended December 31, 2006:

SARsWeighted average

exercise priceWeighted average

Contractual Life

AggregateIntrinsic

Value

Outstanding at December 31, 2005 138,568 $21.41Granted 188,475 25.76Exercised (5,976) 21.31Forfeited/cancelled (53,657) 23.67

Outstanding at December 31, 2006 267,410 $24.02 5.9 $487

Exercisable at December 31, 2006 18,532 $21.50 5.3 $ 68

Aggregate intrinsic value represents the difference between the exercise prices and the closing stock price on December 31, 2006.The total intrinsic value of SARs exercised during the year ended December 31, 2006 was not material, based on the differencebetween the exercise price and the closing stock price on the date of exercise.

For various price ranges, weighted average characteristics of outstanding employee stock appreciation rights at December 31, 2006are as follows:

SARS Outstanding SARS Exercisable

Range of Exercise Prices


December 31, 2006

Weighted AverageRemaining

Contractual LifeWeighted Average

Exercise Price


December 31, 2006Weighted Average

Exercise Price

$20.42 - $23.60 123,790 5.57 $20.97 16,532 $20.74$26.56 - $27.80 143,620 6.19 $26.66 2,000 $27.80

267,410 18,532

The following table summarizes the Company’s nonvestedSAR’s activity and related information for the year endedDecember 31, 2006:

SARs


Price


Granted 188,475 25.76

Vested (27,164) 21.42

Forfeited/cancelled (51,001) 23.80


As of December 31, 2006, total unrecognized compensationcost related to nonvested SARs was $1.5 million and will berecognized over the remaining weighted-average service periodof 2.2 years.

The table below illustrates the effect on net earnings and earn-ings per share as if the Company had applied the fair valuerecognition provisions of SFAS No. 123 for the years endedDecember 31, 2005 and 2004, respectively. The Black-Scholesoption pricing model was used to estimate the fair value ofstock options and SARs.

2005 2004

Net income, as reported $13,805 $ 7,528

Stock-based employee and director compensation cost

included in reported earnings, net of income tax

effect 583 693

Stock-based employee and director compensation cost

under fair value-based method, net of income tax

effect (1,001) (2,330)

Pro forma net income $13,387 $ 5,891

Net earnings per share:

Basic—as reported $ 0.70 $ 0.38

Basic—pro forma $ 0.68 $ 0.30

Diluted—as reported $ 0.69 $ 0.38

Diluted—pro forma $ 0.67 $ 0.30

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Restricted StockDuring 2006, the Company issued 5,000 shares of restrictedcommon stock that vest over two and one-half years. Sharesthat do not vest are forfeited. At December 31, 2006, therewere 3,933 unvested shares outstanding.

Compensation cost on restricted stock is based on the fair valueof the Company’s common stock on the date of grant and ischarged to earnings on a straight line basis over the vestingperiod. Upon vesting, the holder receives unrestricted commonstock and is credited with additional shares of CDI commonstock having a fair market value equal to the sum of the divi-dends that would have been paid on the restricted stock duringthe vesting period. To the extent that restricted shares are for-feited, the forfeited shares will be placed in treasury stock.

Deferred StockTime-Vested Deferred Stock (“Deferred Stock”) entitles eachrecipient to receive a number of shares of CDI common stockupon vesting. The shares of Deferred Stock vest 20% on eachof the next five anniversaries of the date of grant. DeferredStock will generally be forfeited prior to vesting if the holder’semployment with the Company ends. Upon vesting, a holder ofDeferred Stock is credited with additional shares of CDI com-mon stock having a fair market value equal to the sum of thedividends that would have been paid on the deferred stockduring the vesting period. Compensation cost on DeferredStock is based on the fair value of the Company’s commonstock on the date of grant and is charged to earnings on astraight-line basis over the vesting period.

The following table summarizes the Company’s Deferred Stockactivity and related information for the year endedDecember 31, 2006:

DeferredStock

Weightedaverageexercise

price

Weightedaverage

ContractualLife

Outstanding at December 31, 2005 39,501 $22.07Granted 56,596 25.90Vested (8,465) 21.98Forfeited/cancelled (13,935) 23.25

Outstanding at December 31,2006 73,697 $24.80 6.2

Dividend Shares Outstanding atDecember 31, 2006 1,191 $24.90 -

Total Outstanding atDecember 31, 2006 74,888 $24.80 6.2

Aggregate intrinsic value represents the difference between theexercise prices and the closing stock price on December 31,2006. The total intrinsic value of deferred stock exercised duringthe year ended December 31, 2006 was immaterial, based onthe difference between the exercise price and the closing stockprice on the date of exercise.

Performance Contingent Deferred StockIn 2006 and 2005, the Company issued performance con-tingent awards under the Omnibus Plan that generally vest overa two year period. Awards are earned based on the achieve-ment of predetermined goals. The fair value of the awards isdetermined on the date of grant. If the Company determinesthe achievement of the performance conditions is probable,there will be charges to earnings on a straight-line basis overthe vesting period. No awards were earned during 2006 or2005 because the performance conditions were not met.

Stock Purchase PlanUnder the terms of a stock purchase plan (“SPP”), designatedemployees and non-employee directors have the opportunity topurchase shares of the Company’s common stock on a pre-taxbasis. Employee participants use a portion of their annual bonusawards to purchase SPP units. Certain senior managementpersonnel are required to participate by using 25% of theirannual bonus awards to purchase SPP units and can elect partic-ipation for up to an additional 25%. Other employee partic-ipants can elect to use up to 25% of their annual bonusamount. Non-employee directors may participate by using someor all of their retainer fees to purchase SPP units. The Companymakes a matching contribution of one SPP unit for every threeunits purchased by a participant on a voluntary basis. Vesting ofunits occurs over a period of three to ten years as chosen by theparticipant. There are 51,516 SPP units (including Companymatching units) accumulated as of December 31, 2006. Theunits were determined using a weighted average market priceof $24.07 per share.

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Note 9 - Capital StockChanges in common shares issued and treasury shares for theyears ended December 31, 2006, 2005, and 2004 are as fol-lows:

2006 2005 2004

Shares issued

Beginning of year 20,789,972 20,668,401 20,535,835

Exercise of stock options 122,460 82,070 110,026

Exercise of stock appreciation

rights 795 - -

Time Vested Deferred stock 5,586 - -

Restricted stock 5,000 - -

Stock purchase plans 51,417 39,501 22,540

End of year 20,975,230 20,789,972 20,668,401

Treasury shares

Beginning of year 966,934 964,434 963,465

Restricted stock forfeiture - 2,500 969

End of year 966,934 966,934 964,434

Note 10 - Basic and Diluted Earnings Per Share (EPS) DataThe following table reconciles the denominator used to com-pute basic EPS to the denominator used to compute diluted EPSfor each fiscal year ended December 31:

2006 2005 2004

Basic

Average shares outstanding 19,948,688 19,755,840 19,660,039

Restricted shares issued not

vested (4,667) (11,725) (28,450)

19,944,022 19,744,115 19,631,589

Diluted

Shares used for basic

calculation 19,944,022 19,744,115 19,631,589

Dilutive effect of shares / units

granted under Omnibus

Stock Plan 98,743 103,417 230,652

Dilutive effect of units issuable

under Stock Purchase Plan 46,854 92,194 103,857

20,089,619 19,939,726 19,966,098

Note 11 - Income TaxesPre-tax earnings from continuing operations for the years endedDecember 31, 2006, 2005, and 2004 were taxed in the follow-ing jurisdictions:

2006 2005 2004

United States $26,836 $13,557 $6,689

Foreign 9,619 8,432 3,208

$36,455 $21,989 $9,897

Income tax expense (benefit) for the years ended December 31,2006, 2005, and 2004 was comprised of the following:

Total Federal State Foreign

2006

Current $ 9,574 $7,110 $ 270 $2,194

Deferred 3,618 2,169 704 745

$13,192 $9,279 $ 974 $2,939

2005

Current $ 4,423 $ 131 $ 513 $3,779

Deferred 3,609 4,669 (486) (574)

$ 8,032 $4,800 $ 27 $3,205

2004

Current $ 1,810 $ 437 $ 177 $1,196

Deferred 559 594 93 (128)

$ 2,369 $1,031 $ 270 $1,068

The following table reconciles income tax expense based on theU.S. statutory rate to the Company’s income tax expense relatedto continuing operations:

2006 2005 2004

Income tax expense based on the U.S.

statutory rate $12,759 $7,697 $ 3,465

State income taxes, net of federal tax

benefit 410 (562) 176

Expenses permanently nondeductible for

tax purposes 300 332 367

Canadian Scientific Research and

Experimental Development Tax

Incentive Program (678) - -

Foreign income taxes 33 253 (138)

Change in valuation allowance 267 589 (400)

Resolution of prior years’ tax exposure - (127) (1,035)

Other 101 (150) (66)

$13,192 $8,032 $ 2,369

The tax effects of temporary differences that give rise to theCompany’s deferred tax accounts as of December 31, 2006 and2005 were as follows:

2006 2005

Deferred tax assets:

Expenses not currently deductible

(principally compensation and payroll-related) $10,434 $11,092

Loss carryforwards 6,782 7,679

Credit carryforwards 617 1,953

Total gross deferred tax assets 17,833 20,724

Less: valuation allowance (2,412) (2,145)

Net total deferred tax assets 15,421 18,579

Deferred tax liabilities:

Deferral of revenues and accounts receivable (2,585) (2,427)

Basis differences for fixed assets (1,376) (769)

Intangible assets amortization (2,340) (767)

Other (874) (2,750)

Total gross deferred tax liabilities (7,175) (6,713)

Net deferred tax assets $ 8,246 $11,866

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The valuation allowance primarily relates to the reduction ofstate loss carryforwards to a level which more likely than not willbe realized. The total valuation allowance for the years endedDecember 31, 2006 and 2005 increased by $267 and $589,respectively, due to an increase in the valuation allowanceattributable to state loss carryforwards.

At December 31, 2006, for state income tax purposes, there areoperating loss carryforwards aggregating approximately $144.8million expiring in varying amounts from 2007 through 2020.Realization is dependent upon generating sufficient state tax-able income prior to expiration of the loss carryforwards.Although realization is not assured, management believes it ismore likely than not that the deferred tax asset, net of the valu-ation allowance, will be realized. The amount of the deferredtax asset considered realizable could be reduced if estimates offuture state taxable income during the carryforward period arereduced.

The Company has not recorded deferred income taxes on theundistributed earnings of its foreign subsidiaries because it ismanagement’s intention to reinvest such earnings for the fore-seeable future. At December 31, 2006, the undistributed earn-ings of the foreign subsidiaries amounted to approximately$54.4 million. Upon distribution of these earnings in the form ofdividends or otherwise, the Company may be subject to U.S.income taxes and foreign withholding taxes. It is not practical,however, to estimate the amount of taxes that may be payableon the eventual remittance of these earnings.

Note 12 - Derivative InstrumentsDuring the first quarter of 2006, the Company entered intoeight forward exchange contracts to hedge portions of its Brit-ish Pound and Canadian Dollar forecasted earnings. Throughoutthe year, a British Pound and Canadian Dollar forward contractmatured on the last day of each fiscal quarter. Under SFASNo. 133, Accounting for Derivative Instruments and HedgingActivities, these instruments are accounted for at fair value.Because the Company could not designate these transactions ashedges for accounting purposes, gains or losses were reflectedin earnings immediately while the foreign-currency-basedincome is recognized over the year.

For the year ended December 31, 2006, the Company recog-nized a loss of $0.9 million relating to the forward exchangecontracts which matured in 2006. In 2005 and 2004, theCompany purchased foreign exchange put options to hedge aportion of its European operations’ forecasted earnings. Thesecontracts resulted in immaterial charges for the years endedDecember 31, 2005 and 2004. The effect of these transactionsis reflected in the accompanying consolidated statements ofearnings in “Interest income and other (expense), net”. AtDecember 31, 2006 there were no outstanding contracts.

Note 13 - Legal Proceedings and ClaimsThe Company has litigation and other claims pending whichhave arisen in the ordinary course of business.

In June 2006, the United Kingdom’s Office of Fair Trading(“OFT”) opened an investigation into alleged anti-competitivebehavior by Anders and a number of its competitors in the U.K.construction recruitment industry. The allegations being inves-tigated include, among others, the competitors agreeing tominimum fees in their contracts with U.K. intermediary recruit-ment companies and declining to work with one particular U.K.intermediary recruitment company. Anders is cooperating withthe OFT in the investigation under the OFT’s corporate leniencyprogram. It is likely that the OFT will ultimately impose a fine onAnders. Although it is too early in the process to determine withany reliability the amount or materiality of that fine, the finecould be material and this matter could have a material adverseeffect on the Company’s financial position and results of oper-ations. The Company has not made any provision for any fine orother liabilities relating to this matter in the Company’s con-solidated financial statements as of or for the year endedDecember 31, 2006.

The Company is engaged in negotiations with a customer toresolve several issues related to scope of work, change ordersand payments associated with two separate contracts. The dis-pute approximates $1.7 million and negotiations are ongoing. Afavorable resolution cannot be assured. The Company has notmade any provision for this matter in the Company’s con-solidated financial statements as of December 31, 2006.

In January 2007, the Company received a claim from acustomer seeking $1.8 million due to alleged errors in theCompany’s engineering design work. The Company hasrejected the claim and the parties have agreed to meet to try toresolve the issues. The Company has not made any provision forthis matter in the Company’s consolidated financial statementsas of December 31, 2006.

The Company was a party to an arbitration proceeding involvinga dispute regarding amounts due under a fixed-price contractwith a customer. The arbitration hearing process commencedduring the first quarter of 2006, and, on June 29, 2006, thearbitrator awarded a net amount of $1.9 million to the Com-pany, which resulted in a $0.5 million charge to cost of sales inthe BS segment.

During 2005, there were various settlements, judgments andaccruals established related to claims which had been madeagainst the Company. Those items, resulting in a charge of $2.7million in 2005, arose primarily from unemployment insuranceand other tax matters and disputes with customers within theBusiness Solutions segment, and tax matters within the Todayssegment. These charges are included in operating and admin-istrative expenses in the accompanying consolidated statementof earnings for the year ended December 31, 2005.

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During 2004, there were various settlements, judgments andaccruals established relating to claims which had been madeagainst the Company. Those items, resulting in a charge ofapproximately $5.4 million, arose primarily out of a dispute witha potential subcontractor and the resolution of tax matterswithin the Business Solutions segment, a lease dispute withinthe AndersElite segment, and a dispute with the purchaser of abusiness that was previously sold by the Company (the settle-ment of which was accounted for as a Corporate expense).Approximately $0.6 million of these charges are reflected as areduction of revenues and approximately $4.8 million of thesecharges are included in operating and administrative expensesin the accompanying consolidated statement of earnings for theyear ended December 31, 2004.

Note 14 - Retirement PlansTrusteed contributory and non-contributory defined con-tribution retirement plans have been established for the benefitof eligible employees. Costs of the plans are charged to earn-ings and are based on either a formula using a percentage ofcompensation or an amount determined by the Board of Direc-tors. Charges to earnings for these retirement plans for theyears ended December 31, 2006, 2005, and 2004 were $1,854,$1,523, and $1,017, respectively. The Company does not pro-vide other post-retirement or post-employment benefits.

Note 15 - Lease CommitmentsOffices used for sales, recruiting, and administrative functionsand facilities used for in-house engineering, design, and draft-ing are occupied under numerous leases that expire through2016. In addition, there are leases for computers and officeequipment. Due primarily to prior year restructuring, CDI hadentered into several non-cancelable sublease arrangementswhich expired in 2006.

Rental expenses and sublease proceeds for the years endedDecember 31, 2006, 2005, and 2004 are as follows:

2006 2005 2004

Rental expense $16,247 $15,037 $14,527

Sublease proceeds 72 723 399

For periods after December 31, 2006, approximate minimumannual rental payments under non-cancelable leases are pre-sented in the table below.

2007 2008 2009 2010 2011 Thereafter

Future minimum lease

payments on non-

cancelable leases $11,859 $10,744 $9,018 $7,139 $5,607 $15,403

Note 16 - Disposition of AssetsDuring 2005, the Company recorded a pre-tax gain of $0.4 mil-lion from a sale of a non-operating corporate asset. Proceedsfrom this sale were $0.6 million.

Note 17 - Related Party TransactionsThe Company obtains legal services, and through October 2005sublet office space, from a law firm whose chairman is a mem-ber of the Company’s Board of Directors. Total disbursementsto the law firm relating to these items aggregated approx-imately $0.8 million, $1.7 million and $1.9 million in 2006,2005, and 2004, respectively.

The president of the Company’s subsidiary, MRI, currently ownsa 25% indirect interest in MRI Worldwide Network Limited,MRI’s principal international master franchisee. AtDecember 31, 2006, amounts due from MRI Worldwide Net-work Limited amounted to $0.1 million.

Note 18 - Sale of International Master FranchiseEffective April 1, 2006, the Company sold an internationalmaster franchise, which transferred to MRI Worldwide NetworkLimited all existing international franchise agreements as well asthe right to enter into new franchise agreements abroad, withthe exception of existing or future franchises in Japan. TheCompany received a franchise fee of $0.3 million uponexecution of the agreement and will receive franchise fees forall new franchises sold by the master franchisee. The Companywill also receive continuing royalty payments. As part of theagreement, the other party changed its name to “MRI World-wide Network Limited.” The Company also transferred certainemployees and sold fixed assets for $0.1 million, whichapproximated their net book value.

Note 19 - Joint VentureIn December 2006, the Company and two other engineeringfirms formed a joint venture in which the Company owns a33% interest. The joint venture had no substantive operationsin 2006.

This joint venture subsequently entered into an engineeringmaster services agreement with a customer. In connection withthis contract, the Company made a $1.3 million payment to thejoint venture as its portion of the amount subsequently paid tothe customer. The Company has accounted for the payment asa deferred charge as it anticipates significant future businessfrom the customer. The asset will be will amortized on astraight-line basis over the five year life of the contract as areduction of revenues. At December 31, 2006, $0.3 million isincluded in “Prepaid expenses and other assets” and $1.0 mil-lion is included in “Other assets” in the consolidated balancesheet.

Note 20 - Reporting SegmentsThrough December 31, 2006, the Company operated throughfour reporting segments: Business Solutions (“BS”), AndersElite(“Anders”), Todays Staffing (“Todays”), and ManagementRecruiters International (“MRI”). BS operates principally throughfive key verticals: CDI-Process & Industrial, CDI-Information

46

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Technology (“IT”) Services, CDI-Aerospace, CDI-GovernmentServices, and CDI-Life Sciences. Beginning in the first quarter of2007, the Company will separately report CDI Engineering Sol-utions and CDI IT Solutions. These services are currentlyincluded within the Business Solutions segment. This changereflects the Company’s new operating organization and itshould provide investors with greater clarity on the Company’sengineering versus its IT outsourcing revenue and operatingprofit. The following discussion does not give effect to theformation of this new segment which will be reported sepa-rately commencing in the first quarter of 2007.

BS provides project outsourcing, staffing services and perma-nent placement solutions to customers seeking engineering,design, consulting, information technology services, and pro-fessional personnel, from its offices in the United States,Canada and Germany through the following five verticals:

‰ CDI-Process and Industrial – Provides a full range ofengineering, project management, design, professionalstaffing, and outsourcing solutions to firms in two differ-ent sectors: the process sector that includes firms in oil,gas, alternative energy and chemicals; and the industrialsector, covering firms in power generation and energytransmission, telecommunications, and heavymanufacturing.

‰ CDI-Information Technology Services – Provides IT staff-ing and IT outsourcing solutions to a broad range ofprimarily service-based industries.

‰ CDI-Aerospace – Provides a full range of engineering,design, project management, professional engineeringstaffing, and outsourcing solutions to both the commer-cial and military aerospace markets.

‰ CDI-Government Services – Focuses on providing engineer-ing, design, and logistics services to the defense industry.

‰ CDI-Life Sciences – Offers design, validation, projectmanagement, engineering, professional staffing, andoutsourcing solutions to customers in the pharmaceut-ical, bio-pharmaceutical, and regulated medical servicesindustries.

Anders provides temporary and permanent candidates to cus-tomers in the built environment seeking staff in building, con-struction, and related professional services, through a networkof owned offices. The Company maintains offices in the UnitedKingdom, although it sources some candidates from Australiaand New Zealand for the United Kingdom market. The Com-pany also has offices in Australia where it provides temporaryand permanent candidates to customers.

Todays provides staffing and permanent placement services tocustomers seeking office administrative staff, legal professionals,and financial staff, through a network of company-owned andfranchised offices in the United States and company-owned offi-ces in Canada.

MRI is a franchisor providing support services to its franchiseeswho engage in the search and recruitment of primarilymanagement and sales personnel for employment by their cus-tomers. MRI also provides temporary staffing training andimplementation services. In addition, MRI provides managementand back-office services to support the franchisees’ pursuit oftemporary staffing services.

Effective January 1, 2006, the Company refined its method ofallocating shared services costs to more accurately reflect man-agement and staff time devoted to, and central costs attribut-able to, the reporting segments. The allocation is based upon astudy performed on 2005 activities, the time when thesechanges occurred. Accordingly, the Company has revised thereporting segments’ 2005 operating profit for comparativepurposes. No changes were made to the 2004 results of oper-ations, because management believes that the previousmethodology reasonably reflected support costs allocated to thesegments. Operating segment data for the years endedDecember 31, 2006, 2005, and 2004 is presented in the follow-ing table:

2006 2005 2004

Revenues:

BS $ 828,755 $ 737,755 $ 700,831

Anders 217,188 184,419 166,062

Todays 151,869 149,147 122,262

MRI 67,474 62,263 56,052

$1,265,286 $1,133,584 $1,045,207

Operating profit (loss):

BS $ 28,918 $ 15,722 $ 11,681

Anders 7,672 5,473 2,456

Todays 3,968 2,406 2,165

MRI 14,610 14,931 9,830

Gain on sale of assets - 420 -

Corporate (18,141) (17,270) (16,763)

37,027 21,682 9,369

Interest income, net and other (572) 307 528

$ 36,455 $ 21,989 $ 9,897

The following table reconciles the amount of 2005 operatingprofit as previously reported to the revised amounts as shownabove:

December 31, 2005

Amountspreviouslyreported Reclassifications As Revised

Operating profit (loss):

BS $ 14,694 $ 1,028 $ 15,722

Anders 6,144 (671) 5,473

Todays 3,588 (1,182) 2,406

MRI 14,106 825 14,931

Gain on sale of asset 420 - 420

Corporate expenses (17,270) - (17,270)

$ 21,682 - $ 21,682

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Inter-segment activity is not significant. Therefore, revenuesreported for each operating segment are substantially all fromexternal customers.

2006 2005 2004

Depreciation and amortization:

BS $ 7,664 $ 7,845 $ 6,778

Anders 1,369 1,185 1,046

Todays 610 563 721

MRI 443 408 756

Corporate 442 299 317

$ 10,528 $ 10,300 $ 9,618

Assets:

BS $233,946 $222,831 $194,424

Anders 70,819 59,254 57,540

Todays 42,502 45,868 44,865

MRI 31,689 37,786 28,428

Corporate 34,163 13,755 33,762

$413,119 $379,494 $359,019

Purchases of property and equipment:

BS $ 9,454 $ 11,969 $ 5,747

Anders 1,914 1,052 1,229

Todays 617 1,515 338

MRI 928 919 180

Corporate 597 243 304

$ 13,510 $ 15,698 $ 7,798

The Company is domiciled in the United States and its segments(other than Anders) operate primarily in the United States.Revenues and fixed assets by geographic area for the yearsended December 31, 2006, 2005, and 2004 are as follows:

2006 2005 2004

Revenues:

United States $ 918,810 $ 858,050 $ 808,169

United Kingdom 214,984 188,302 170,493

Canada 101,064 85,968 66,219

Other 30,428 1,264 326

$1,265,286 $1,133,584 $1,045,207

Property and equipment:

United States $ 33,600 $ 30,884 $ 23,720

United Kingdom 4,561 3,951 3,721

Canada 1,510 1,927 943

Other 180 210 -

$ 39,851 $ 36,972 $ 28,384

Note 21 - Subsequent EventsOn February 28, 2007, the Company entered into anunsecured, committed credit agreement which provides for arevolving credit facility of up to $45.0 million. The agreementexpires on February 27, 2008. Interest on borrowings under thefacility is based on the nature and tenure of the borrowing andmay be (a) in the case of U.S. dollar borrowings, the greater ofthe Prime Rate or the Federal Funds Effective Rate plus 0.5% or(b) in the case of Eurodollar borrowings, the Adjusted LIBORrate (as defined in the agreement). The restrictive covenantscontained in the agreement limit the Company with respect to,among other things, subsidiary indebtedness, creating liens onits assets, mergers or consolidations, disposition of assets otherthan in the ordinary course of business, acquisitions andinvestments. Additionally, the Company is required to maintaina minimum Adjusted EBITDA (as defined in the agreement) tointerest expense ratio of 1.5 to 1, not exceed a maximum Debtto Consolidated EBITDA ratio of 2.5 to 1 and maintain a mini-mum shareholders’ equity of $228 million plus 35% of con-solidated net income for each fiscal quarter.

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1*IFV 1C

CHWFBU-MWS-CX019.6

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of CDI Corp.:We have audited the accompanying consolidated balance sheets of CDI Corp. and subsidiaries as of December 31, 2006 and 2005,and the related consolidated statements of earnings, shareholders’ equity, and cash flows for each of the years in the three-yearperiod ended December 31, 2006. In connection with our audits of the consolidated financial statements, we have also audited therelated financial statement schedule. These consolidated financial statements and the financial statement schedule are theresponsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statementsand related financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statementsare free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements. An audit also includes assessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonablebasis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial positionof CDI Corp. and subsidiaries as of December 31, 2006 and 2005, and the results of their operations and their cash flows for eachof the years in the three-year period ended December 31, 2006, in conformity with U.S. generally accepted accounting principles.Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial state-ments taken as a whole, presents fairly in all material respects, the information set forth therein.

As discussed in notes 1 and 8 to the consolidated financial statements, CDI Corp. adopted Statement of Financial Accounting Stan-dards number 123 (R), “Share Based Payments,” and related interpretations as of January 1, 2006.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), theeffectiveness of CDI Corp.’s internal control over financial reporting as of December 31, 2006, based on the criteria established inInternal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission(COSO), and our report dated March 6, 2007 expressed an unqualified opinion on management’s assessment of, and the effectiveoperation of, internal control over financial reporting.

/S/ KPMG LLP

Philadelphia, PennsylvaniaMarch 6, 2007

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1*IFV 1C

CHWFBU-MWS-CX019.6

Quarterly Results (Unaudited)

The following is a summary of quarterly financial information for fiscal 2006 and 2005:

Year Ended December 31, 2006

(in thousands, except per share data)First

QuarterSecondQuarter

ThirdQuarter

FourthQuarter Total

Revenues $307,331 $314,478 $322,451 $321,026 $1,265,286Gross profit 70,571 72,308 74,854 76,759 294,492Operating and administrative expenses 62,737 64,049 64,447 66,232 257,465Operating profit 7,834 8,259 10,407 10,527 37,027Net earnings 4,906 5,454 6,102 6,801 23,263Diluted earnings per share 0.25 0.27 0.30 0.34 1.16

Year Ended December 31, 2005

(in thousands, except per share data)First

QuarterSecondQuarter

ThirdQuarter

FourthQuarter (1) Total

Revenues $265,919 $286,411 $290,530 $290,724 $1,133,584Gross profit 60,785 66,246 68,135 67,402 262,568Operating and administrative expenses 57,665 59,980 61,207 62,580 241,432Operating profit 3,540 6,266 6,928 4,948 21,682Net earnings 2,314 3,998 4,173 3,320 13,805Diluted earnings per share 0.12 0.20 0.21 0.16 0.69

(1) During the fourth quarter of 2005, management identified and corrected certain errors that occurred in earlier 2005quarters and prior years of $0.3 million and $1.2 million, respectively. The adjustments, amounting to $1.5 million($1.1 million, net of tax, or $0.05 per basic and diluted share), reduced both revenues and gross profit by $1.4 millionand increased expenses by $0.1 million in the fourth quarter of 2005. See Note 2 to the consolidated financial state-ments for more information.

Item 9.Changes in and Disagreements withAccountants on Accounting and FinancialDisclosure

Not applicable.

Item 9A. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

The management of the Company, under the supervisionand with the participation of the Company’s Chief ExecutiveOfficer and Chief Financial Officer, has evaluated the effec-tiveness of the Company’s disclosure controls and proce-dures (as such term is defined in Rules 13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934, asamended (the “Exchange Act”)) as of December 31,2006. Based on this evaluation, the Chief Executive Officerand Chief Financial Officer have concluded that the Compa-ny’s disclosure controls and procedures were effective as ofthat date.

(b)Management’s Report on Internal Control over FinancialReporting

Under Section 404 of the Sarbanes-Oxley Act of 2002,management is required to assess the effectiveness of theCompany’s internal control over financial reporting as of the

end of each fiscal year and report, based on that assessment,whether the Company’s internal control over financialreporting is effective.

The Company’s management is responsible for establishingand maintaining adequate internal control over financialreporting. The Company’s internal control over financialreporting is a process designed to provide reasonable assur-ance of the reliability of its financial reporting and of thepreparation of its financial statements for external reportingpurposes, in accordance with U.S. generally acceptedaccounting principles.

The Company’s internal control over financial reportingincludes policies and procedures that (1) pertain to the main-tenance of records that, in reasonable detail, accurately andfairly reflect transactions and disposition of assets;(2) provide reasonable assurance that transactions arerecorded as necessary to permit preparation of financialstatements in accordance with U.S. generally acceptedaccounting principles, and that receipts and expenditures arebeing made only in accordance with the authorization of itsmanagement and directors; and (3) provide reasonableassurance regarding the prevention or timely detection ofunauthorized acquisition, use, or disposition of the Compa-ny’s assets that could have a material effect on its financialstatements.

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Because of its inherent limitations, internal control over finan-cial reporting may not prevent or detect misstatements. Also,projections of any evaluation of the effectiveness to futureperiods are subject to the risk that controls may becomeinadequate because of changes in conditions, or that thedegree of compliance with the policies and proceduresincluded in such controls may deteriorate.

The Company’s management has assessed the effectivenessof the Company’s internal control over financial reporting asof December 31, 2006. In making this assessment, theCompany used the criteria established by the Committee ofSponsoring Organizations of the Treadway Commission(COSO) in “Internal Control-Integrated Framework.” Thesecriteria are in the areas of control environment, risk assess-ment, control activities, information and communication,and monitoring. The Company’s assessment includedextensive documenting, evaluating and testing the designand operating effectiveness of its internal controls overfinancial reporting.

Based on the Company’s processes and assessment, asdescribed above, management has concluded that, as ofDecember 31, 2006, the Company’s internal control overfinancial reporting was effective.

The Company’s independent registered public accountants,KPMG LLP, have audited and issued their report onmanagement’s assessment of the Company’s internal controlover financial reporting, which report is included herein.

(c) Changes in Internal Control

There were no changes in the Company’s internal controlover financial reporting during the Company’s fourth quarterended December 31, 2006, that have materially affected, orare reasonably likely to materially affect, the Company’sinternal control over financial reporting.

(d)Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

CDI Corp.:

We have audited management’s assessment, included in theaccompanying Management’s Report on Internal ControlOver Financial Reporting, that CDI Corp. and subsidiariesmaintained effective internal control over financial reportingas of December 31, 2006, based on criteria established inInternal Control—Integrated Framework issued by theCommittee of Sponsoring Organizations of the TreadwayCommission (COSO). CDI Corp.’s management is responsiblefor maintaining effective internal control over financialreporting and for its assessment of the effectiveness ofinternal control over financial reporting. Our responsibility isto express an opinion on management’s assessment and anopinion on the effectiveness of the Company’s internal con-trol over financial reporting based on our audit.

We conducted our audit in accordance with the standards ofthe Public Company Accounting Oversight Board (UnitedStates). Those standards require that we plan and performthe audit to obtain reasonable assurance about whethereffective internal control over financial reporting was main-tained in all material respects. Our audit included obtainingan understanding of internal control over financial reporting,evaluating management’s assessment, testing and evaluatingthe design and operating effectiveness of internal control,and performing such other procedures as we considerednecessary in the circumstances. We believe that our auditprovides a reasonable basis for our opinion.

A company’s internal control over financial reporting is aprocess designed to provide reasonable assurance regardingthe reliability of financial reporting and the preparation offinancial statements for external purposes in accordancewith generally accepted accounting principles. A company’sinternal control over financial reporting includes those poli-cies and procedures that (1) pertain to the maintenance ofrecords that, in reasonable detail, accurately and fairly reflectthe transactions and dispositions of the assets of the com-pany; (2) provide reasonable assurance that transactions arerecorded as necessary to permit preparation of financialstatements in accordance with generally accepted account-ing principles, and that receipts and expenditures of thecompany are being made only in accordance with author-izations of management and directors of the company; and(3) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or dis-position of the company’s assets that could have a materialeffect on the financial statements.

Because of its inherent limitations, internal control over finan-cial reporting may not prevent or detect misstatements. Also,projections of any evaluation of effectiveness to future peri-ods are subject to the risk that controls may becomeinadequate because of changes in conditions, or that thedegree of compliance with the policies or procedures maydeteriorate.

In our opinion, management’s assessment that CDI Corp.maintained effective internal control over financial reportingas of December 31, 2006, is fairly stated, in all materialrespects, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsor-ing Organizations of the Treadway Commission (COSO).Also, in our opinion, CDI Corp. maintained, in all materialrespects, effective internal control over financial reporting asof December 31, 2006, based on criteria established inInternal Control—Integrated Framework issued by theCommittee of Sponsoring Organizations of the TreadwayCommission (COSO).

We also have audited, in accordance with the standards ofthe Public Company Accounting Oversight Board (United

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CHWFBU-MWS-CX019.6

States), the consolidated balance sheets of CDI Corp. as ofDecember 31, 2006 and 2005, and the related consolidatedstatements of earnings, shareholders’ equity, and cash flowsfor each of the years in the three-year period endedDecember 31, 2006, and our report dated March 6, 2007expressed an unqualified opinion on those consolidatedfinancial statements.

/s/ KPMG LLPPhiladelphia, PennsylvaniaMarch 6, 2007

Item 9B. Other Information

None.

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2*PMT 1C


Part III

Item 10. Directors, Executive Officers and CorporateGovernance

Information related to directors, executive officers and corpo-rate governance is omitted herein as the required informationwill be included in a definitive proxy statement to be filed withthe Securities and Exchange Commission pursuant to Regulation14A no later than 120 days after the close of the fiscal year.

The Company has adopted a code of conduct that applies to allof the Company’s employees, including its principal executiveofficer, principal financial officer, principal accounting officer orcontroller, or persons performing similar functions. This code ofconduct is available on the Company’s website atwww.cdicorp.com, or may be obtained free of charge by mak-ing a written request addressed to the Company’s Vice Presi-dent of Corporate Communications. The Company will discloseon its website amendments to, and, if any are granted, waiversof, its code of conduct for its principal executive officer, princi-pal financial officer, or principal accounting officer or controller.

Item 11. Executive Compensation

Information related to executive compensation is omitted hereinas the required information will be included in a definitive proxystatement to be filed with the Securities and Exchange Commis-sion pursuant to Regulation 14A no later than 120 days afterthe close of the fiscal year.

Item 12.Security Ownership of Certain BeneficialOwners and Management and RelatedStockholder Matters

Information related to security ownership of certain beneficialowners and management is omitted herein as the requiredinformation will be included in a definitive proxy statement tobe filed with the Securities and Exchange Commission pursuantto Regulation 14A no later than 120 days after the close of thefiscal year.

Equity Compensation Plan InformationThe following table provides information as of December 31, 2006 for common shares of the Company that may be issued under theCDI Corp. 2004 Omnibus Plan. It also includes information related to the CDI Corp. Stock Purchase Plan for Management Employees andNon-Employee Directors (“SPP”). See Note 8 to the consolidated financial statements for further information related to these plans.

Number of securities

to be issued upon

exercise of

outstanding options,

warrants and rights

Weighted average

exercise price of

outstanding options,

warrants and rights

Number of securities

remaining available

for future issuance

under equity

compensation plans

(excluding securities)

reflected in column A)

A B C

Equity compensation plans approved by security holders (a) 834,009 $22.90 2,059,184

Equity compensation plans not approved by security holders - - -

Total 834,009 $22.90 2,059,184

(a) The number of securities in column A includes 51,516 units awarded to participants in the SPP plan. The weighted average share price of $24.07 for theSPP represents the weighted average market price per share of the Company’s common stock on the days when units were awarded to participants underthe plans. Upon vesting, participants in the plans are entitled to receive an equal number of shares of the Company’s common stock.At December 31, 2006, 19,549 shares would have been issuable to participants under the Stock Appreciation Rights component of the CDI Corp. 2004Omnibus Plan. Participants are eligible to receive any appreciation in the value of the stock from the date of grant to the exercise date equal to the numberof shares of the Company’s common stock on the day of vesting. The weighted average appreciation of the units was $3.93 based on the quoted marketprice of the Company’s common stock of $24.90 on December 30, 2006. The market price exceeded the grant price for 123,790 units of the 267,410units granted under the plan.At December 31, 2006, 73,697 shares of time-vested Deferred Stock were awarded to various employees. The Deferred Stock entitles each recipient toreceive an equivalent number of shares of CDI common stock upon vesting. The shares of Deferred Stock vest 20% per year on the first five anniversariesof the date of grant. Deferred Stock will generally be forfeited prior to vesting if the holder’s employment with the company ends. Upon vesting, a holderof Deferred Stock is credited with additional shares of CDI common stock having a fair market value equal to the sum of the dividends that were paid onthe common stock during the vesting period. At December 31, 2006, 1,191 accrued dividend shares would have been issuable under the plan.

Item 13. Certain Relationships and RelatedTransactions, and Director Independence

Information related to certain relationships and related trans-actions and director independence is omitted herein as therequired information will be included in a definitive proxystatement to be filed with the Securities and Exchange Commis-sion pursuant to Regulation 14A no later than 120 days afterthe close of the fiscal year.

Item 14. Principal Accountant Fees and Services

Information related to principal accountant fees and services isomitted herein as the required information will be included in adefinitive proxy statement to be filed with the Securities andExchange Commission pursuant to Regulation 14A no later than120 days after the close of the fiscal year.

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CHWFBU-MWS-CX019.6

Part IV

Item 15. Exhibits and Financial Statement Schedules

(a) Documents filed as part of this report:

Financial statements:

The consolidated balance sheets of the Registrant as ofDecember 31, 2006 and 2005, the related consolidatedstatements of earnings, shareholders’ equity, and cashflows for each of the years ended December 31, 2006,2005 and 2004, the footnotes thereto, and the reports ofKPMG LLP, independent auditors, are filed herewith.

Financial statement schedule:

Schedule II—Valuation and Qualifying Accounts for theyears ended December 31, 2006, 2005, and 2004.

(b) Exhibits

Number Exhibit

3.1 Articles of incorporation of the Registrant,incorporated herein by reference to Exhibit 3.(i) to theRegistrant’s Quarterly Report on Form 10-Q for thequarter ended June 30, 2002 (File No. 001-05519).

3.2. Bylaws of the Registrant, incorporated herein byreference to Exhibit 3.(ii) to the Registrant’sQuarterly Report on Form 10-Q for the quarterended June 30, 2002 (File No. 001-05519).

10.1 Promissory Note dated November 16, 2004 fromCDI Corp. to JP Morgan Chase Bank, along withcover letter from JP Morgan Chase Bank to CDICorp., incorporated herein by reference to Exhibit10.m to the Registrant’s Annual Report on Form10-K for the year ended December 31, 2004.

10.2 Amendment dated November 27, 2006 to thePromissory Note from CDI Corp. to JP MorganChase Bank.

10.3 Amendment dated August 29, 2006 to thePromissory Note from CDI Corp. to JP MorganChase Bank.

10.4 Amendment dated June 21, 2006 to the PromissoryNote from CDI Corp. to JP Morgan Chase Bank,incorporated herein by reference to Exhibit 10.1 tothe Registrant’s Annual Report on Form 10-Q for thequarter ended June 30, 2006 (File No. 001-05519).

10.5 Amendment dated February 27, 2006 to thePromissory Note from CDI Corp. to JP MorganChase Bank, incorporated herein by reference toExhibit 10.2 to the Registrant’s Annual Report onForm 10-K for the year ended December 31, 2005(File No. 001-05519).

10.6 Amendment dated October 27, 2005 to thePromissory Note from CDI Corp. to JP MorganChase Bank, incorporated herein by reference toExhibit 10.3 to the Registrant’s Annual Report onForm 10-K for the year ended December 31, 2005(File No. 001-05519).

Number Exhibit

10.7 Technical Services Agreement dated as of July 1,2005 between CDI Corporation and InternationalBusiness Machines Corporation, incorporated hereinby reference to Exhibit 10.c to the Registrant’sQuarterly Report on Form 10-Q for the quarterended September 30, 2005 (File No. 001-05519).

10.8 CDI Corp. 2004 Omnibus Stock Plan, incorporatedherein by reference Appendix A to the Registrant’s2004 proxy statement filed on Schedule 14A onApril 21, 2004 (File No. 001-05519). (Constitutes amanagement contract or compensatory plan orarrangement.)

10.9 Amended and Restated CDI Corp. 1998 Non-Qualified Stock Option Plan, incorporated herein byreference to Exhibit 10.b to the Registrant’sQuarterly Report on Form 10-Q for the quarterended March 31, 2003 (File No. 001-05519).(Constitutes a management contract orcompensatory plan or arrangement.)

10.10 Amended and Restated CDI Corp. Stock PurchasePlan for Management Employees and Non-Employee Directors, incorporated herein byreference to Appendix C to the Registrant’s 2004proxy statement filed on Schedule 14A on April 21,2004 (File No. 001-05519). (Constitutes amanagement contract or compensatory plan orarrangement.)

10.11 CDI Corporation Deferred Compensation Plan,incorporated herein by reference Exhibit No. 10.e tothe Registrant’s Annual Report on Form 10-K forthe year ended December 31, 2004 (File No.001-05519). (Constitutes a management contractor compensatory plan or arrangement.)

10.12 Executive Severance Arrangement Approved by theCDI Corp. Compensation Committee onSeptember 10, 2002, incorporated herein byreference to Exhibit 10.o to the Registrant’sQuarterly Report on Form 10-Q for the quarterended September 30, 2002 (File No. 001-05519).(Constitutes a management contract orcompensatory plan or arrangement.)

10.13 Executive Stock Purchase Opportunity Programapproved by the Board of Directors of theRegistrant on March 9, 2006, incorporated hereinby reference to Exhibit 10.1 to the Registrant’sCurrent Report on Form 8-K filed on March 15,2006 (File No. 001-05519). (Constitutes amanagement contract or compensatory plan orarrangement.)

10.14 Supplemental Pension Agreement dated April 11,1978 between CDI Corporation and Walter R.Garrison, incorporated herein by reference toExhibit 10.f to the Registrant’s Quarterly Report onForm 10-Q for the quarter ended March 31, 2003(File No. 001-05519). (Constitutes a managementcontract or compensatory plan or arrangement.)

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CHWFBU-MWS-CX019.6

Number Exhibit

10.15 Employment Agreement dated August 11, 2005,between Registrant and Roger H. Ballou,incorporated herein by reference to Exhibit 10.a tothe Registrant’s Quarterly Report on Form 10-Q forthe quarter ended September 30, 2005. (File No.001-05519). (Constitutes a management contractor compensatory plan or arrangement.)

10.16 Employment Agreement dated October 1, 2001,between Registrant and Roger H. Ballou,incorporated herein by reference to Exhibit 10.n tothe Registrant’s Annual Report on Form 10-K for theyear ended December 31, 2001. (File No.001-05519). (Constitutes a management contract orcompensatory plan or arrangement.)

10.17 Offer letter dated August 26, 2005 andEmployment Agreement dated September 6, 2005between CDI Corporation and Mark Kerschner,incorporated herein by reference to Exhibit 10.b tothe Registrant’s Quarterly Report on Form 10-Q forthe quarter ended September 30, 2005 (File No.001-05519). (Constitutes a management contractor compensatory plan or arrangement.)

10.18 Non-Qualified Stock Option Agreement datedOctober 14, 2002 between Registrant and Jay G.Stuart, incorporated herein by reference to Exhibit10.l to the Registrant’s Quarterly Report on Form10-Q for the quarter ended March 31, 2003 (FileNo. 001-05519). (Constitutes a managementcontract or compensatory plan or agreement.)

10.19 Restricted Stock Agreement dated October 14, 2002between Registrant and Jay G. Stuart, incorporatedherein by reference to Exhibit 10.m to theRegistrant’s Quarterly Report on Form 10-Q for thequarter ended March 31, 2003 (File No. 001-05519).(Constitutes a management contract orcompensatory plan or agreement.)

10.20 Release and Waiver of Claims and Non-CompetitionAgreement dated December 20, 2004 betweenRegistrant and Jay G. Stuart, incorporated herein byreference to Exhibit 10.l to Registrant’s AnnualReport on Form 10-K for the year ended December31, 2004 (File No. 001-05519). (Constitutes amanagement contract or compensatory plan oragreement.)

10.21 Amendment dated March 10, 2005 to the Releaseand Waiver of Claims and Non-CompetitionAgreement between CDI Corporation and Jay G.Stuart, incorporated herein by reference to Exhibit10.a to the Registrant’s Quarterly Report on Form10-Q for the quarter ended March 31, 2005 (FileNo. 001-05519). (Constitutes a managementcontract or compensatory plan or agreement.)

10.22 Form of Stock Appreciation Rights Agreement,incorporated herein by reference to Exhibit 10.1 tothe Registrant’s Current Report on Form 8-K filedon June 6, 2005 (File No. 001-05519). (Constitutesa management contract or compensatory plan orarrangement)

Number Exhibit

10.23 Form of Time-Vested Deferred Stock Agreement,incorporated herein by reference to Exhibit 10.2 tothe Registrant’s Form 8-K Current Report filed onJune 6, 2005 (File No. 001-05519). (Constitutes amanagement contract or compensatory plan orarrangement.)

10.24 Form of Performance-Contingent Deferred StockAgreement, incorporated herein by reference toExhibit 10.3 to the Registrant’s Form 8-K CurrentReport filed on June 6, 2005 (File No. 001-05519).(Constitutes a management contract orcompensatory plan or arrangement.)

10.25 Form of Stock Appreciation Rights Agreement,incorporated herein by reference to Exhibit 10.1 tothe Registrant’s Current Report on Form 8-K filedon June 30, 2006 (File No. 001-05519).(Constitutes a management contract orcompensatory plan or arrangement.)

10.26 Form of Time-Vested Stock Agreement,incorporated herein by reference to Exhibit 10.2 tothe Registrant’s Current Report on Form 8-K filedon June 30, 2006 (File No. 001-05519).(Constitutes a management contract orcompensatory plan or arrangement.)

10.27 Form of Performance-Contingent Deferred StockAgreement, incorporated herein by reference toExhibit 10.3 to the Registrant’s Current Report onForm 8-K filed on June 30, 2006 (File No.001-05519). (Constitutes a management contractor compensatory plan or arrangement.)

10.28 Summary of Terms of 2005 cash bonus programfor executive officers approved on February 15,2005, incorporated herein by reference to Exhibit10.c to the Registrant’s Quarterly Report on Form10-Q for the quarter ended March 31, 2005 (FileNo. 001-05519). (Constitutes a managementcontract or compensatory plan or agreement.)

10.29 Summary of Terms of Stock Appreciation Rightsand Deferred Stock awarded to Joseph R. Seidersand Cecilia J. Venglarik on February 15, 2005,incorporated herein by reference to Exhibit 10.b tothe Registrant’s Quarterly Report on Form 10-Q forthe quarter ended March 31, 2005 (File No.001-05519). (Constitutes a management contractor compensatory plan or agreement.)

10.30 Bonus agreement dated April 27, 2005 betweenCDI Corporation and John Fanelli III, incorporatedherein by reference to Exhibit 10.a to theRegistrant’s Quarterly Report on Form 10-Q for thequarter ended June 30, 2005 (File No. 001-05519).(Constitutes a management contract orcompensatory plan or agreement.)

10.31 Restricted Stock Agreement dated as of October25, 1999 between CDI Corp. and Gregory L.Cowan, incorporated herein by reference to Exhibit10.o to the Registrant’s Annual Report on Form10-K for the year ended December 31, 1999 (FileNo. 001-05519). (Constitutes a managementcontract or compensatory plan or arrangement.)

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CHWFBU-MWS-CX019.6

Number Exhibit

21 List of Subsidiaries of the Registrant.

23 Consent of Independent Registered PublicAccounting Firm.

31.1 Certification of Chief Executive Officer Pursuant toSection 302 of the Sarbanes-Oxley Act of 2002.

Number Exhibit

31.2 Certification of Chief Financial Officer Pursuant toSection 302 of the Sarbanes-Oxley Act of 2002.

32 Certification of Chief Executive Officer and ChiefFinancial Officer Pursuant to 18 U.S.C. Section1350, as Adopted Pursuant to Section 906 of theSarbanes-Oxley Act of 2002.

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Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused thisreport to be signed on its behalf by the undersigned, thereunto duly authorized.

CDI Corp.By: /s/ Roger H. Ballou

Roger H. BallouPresident and Chief Executive Officer

Date: March 5, 2007

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following personson behalf of the Registrant and in the capacities and on the dates indicated.

By: /s/ Roger H. Ballou By: /s/ Walter R. Garrison By: /s/ Constantine N. PapadakisRoger H. Ballou Walter R. Garrison Constantine N. PapadakisPresident, Chief Director DirectorExecutive Officer and Director Date: March 3, 2007 Date: March 7, 2007(Principal Executive Officer)Date: March 5, 2007 By: /s/ Kay Hahn Harrell By: /s/ Barton J. Winokur

Kay Hahn Harrell Barton J. WinokurBy: /s/ Mark A. Kerschner Director Director

Mark A. Kerschner Date: March 5, 2007 Date: March 5, 2007Executive Vice PresidentAnd Chief Financial Officer By: /s/ Lawrence C. Karlson(Principal Financial and Lawrence C. KarlsonAccounting Officer) DirectorDate: March 5, 2007 Date: March 7, 2007

By: /s/ Michael J. Emmi By: /s/ Ronald J. KozichMichael J. Emmi Ronald J. KozichDirector DirectorDate: March 7, 2007 Date: March 5, 2007

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1*IFV 1C

CHWFBU-MWS-CX019.6

Schedule II

CDI CORP. AND SUBSIDIARIESValuation and Qualifying Accounts(Allowance for Uncollectible Receivables)

Years ended December 31, 2006, 2005 and 2004

Balance atbeginning

of year

Additionscharged to

earnings

Uncollectiblereceivableswritten off,

net of recoveriesBalance at

end of year

December 31, 2006 $3,588,000 $1,736,000 $1,798,000 $3,526,000December 31, 2005 $4,466,000 $1,296,000 $2,174,000 $3,588,000December 31, 2004 $5,496,000 $1,349,000 $2,379,000 $4,466,000

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50763 EX31_1 1CDI CORPORATIONANNUAL REPORT - FORM


RR Donnelley ProFile LAN sawan0inSTART PAGE

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Exhibit 31.1

Certification

I, Roger H. Ballou, certify that:

1. I have reviewed this annual report on Form 10-K of CDI Corp.;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact oromit to state a material fact necessary to make the statements made, in light of the circumstances underwhich such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annualreport, fairly present in all material respects the financial condition, results of operations and cash flows ofthe registrant as of, and for, the periods presented in this annual report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosurecontrols and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controlover financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant andhave:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and proce-dures to be designed under our supervision, to ensure that material information relating to theregistrant, including its consolidated subsidiaries, is made known to us by others within those enti-ties, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over finan-cial reporting to be designed under our supervision, to provide reasonable assurance regarding thereliability of financial reporting and the preparation of financial statements for external purposes inaccordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented inthis report our conclusions about the effectiveness of the disclosure controls and procedures, as ofthe end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting thatoccurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter inthe case of an annual report) that has materially affected, or is reasonably likely to materially affect,the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internalcontrol over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board ofdirectors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal controlover financial reporting which are reasonably likely to adversely affect the registrant’s ability torecord, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a sig-nificant role in the registrant’s internal control over financial reporting.

Date: March 5, 2007

By: /s/ ROGER H. BALLOU

ROGER H. BALLOUPresident and Chief Executive Officer

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50763 EX31_2 1CDI CORPORATIONANNUAL REPORT - FORM



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Exhibit 31.2

Certification

I, Mark A. Kerschner, certify that:

1. I have reviewed this annual report on Form 10-K of CDI Corp.;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact oromit to state a material fact necessary to make the statements made, in light of the circumstances underwhich such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annualreport, fairly present in all material respects the financial condition, results of operations and cash flows ofthe registrant as of, and for, the periods presented in this annual report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosurecontrols and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controlover financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant andhave:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and proce-dures to be designed under our supervision, to ensure that material information relating to theregistrant, including its consolidated subsidiaries, is made known to us by others within those enti-ties, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over finan-cial reporting to be designed under our supervision, to provide reasonable assurance regarding thereliability of financial reporting and the preparation of financial statements for external purposes inaccordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented inthis report our conclusions about the effectiveness of the disclosure controls and procedures, as ofthe end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting thatoccurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter inthe case of an annual report) that has materially affected, or is reasonably likely to materially affect,the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internalcontrol over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board ofdirectors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal controlover financial reporting which are reasonably likely to adversely affect the registrant’s ability torecord, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have asignificant role in the registrant’s internal control over financial reporting.

Date: March 5, 2007

By: /s/ MARK A. KERSCHNER

MARK A. KERSCHNERExecutive Vice President and Chief

Financial Officer

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50763 EX32 1CDI CORPORATIONANNUAL REPORT - FORM



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EXHIBIT 32

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTEDPURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of CDI Corp. (the “Company”) on Form 10-K for the year ended December 31, 2005 as filedwith the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned Chief Executive Officer and ChiefFinancial Officer of the Company each hereby certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002 that, to his knowledge: 1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Secu-rities Exchange Act of 1934, and 2) the information contained in the Report fairly presents, in all material respect, the financialcondition and results of operations of the Company as of and for the periods covered in the Report.

By: /s/ ROGER H. BALLOU

Roger H. BallouPresident and Chief Executive Officer

Dated: March 5, 2007

By: /s/ MARK A. KERSCHNER

Mark A. KerschnerExecutive Vice President and

Chief Financial Officer

Dated: March 5, 2007

A signed original of this written statement required by Section 906 has been provided to CDI Corp. and will be retained by CDICorp. and furnished to the Securities and Exchange Commission or its staff upon request.

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